Can delays in finished vehicle deliveries be avoided without dealers having to become experts in OEM logistics? 

At Moscow car dealership AVES Peugeot, sales director Evgeny Podolskiy has a distinct problem with the late delivery of incoming vehicles – especially those that have been specifically ordered for by his customers. Russian consumer protection legislation, he explains, stipulates that in the event of late delivery of goods, the seller should pay to the customer a penalty set at 1% of the amount of any advance payment for each day of delay. “In the case of full advance payment being taken for the car, then one week of delay is enough to lose more than the entire margin we make from the car,” Podolskiy points out. He has known cases where customers have claimed for 15% of the price of the car and won in the courts.

For the time being, Podolskiy’s most practical solution has nothing to do with improved logistics, better visibility of late arrivals, or even more communication with OEMs or logistics providers. “To decrease our risk, we take client orders with a maximum of 30% prepaid, and sign the contract with an extended delivery time,” he explains. “But such strategies have increased our risks of contract cancellation by clients, and have also decreased our competitive ability.”

The cost of late delivery
Podolskiy’s story highlights the classic tensions in the vehicle logistics supply chain. Carmakers and dealers alike can see the logic in moving to a build-to-order business model, which would strip billions of dollars from global pre-sales inventory.

Supply chain experts, too, speak of slick logistics processes and how to achieve clear visibility of vehicle locations.

But the current reality is different. The vast majority of cars are sold from inventory parked on dealers’ lots and dealers report a lack of reliable insight into vehicle arrivals, paying the price when vehicles don’t arrive when they should. Furthermore, lead times also appear to have grown for reasons that extend all the way back to tier suppliers, many of whom closed more plants than have OEMs and are therefore less flexible than they used to be.

“Unlike vehicle manufacturers, suppliers did genuinely take capacity out –especially in the United States, where many went bankrupt,” notes Richard Gane, an automotive veteran and a director of supply chain and procurement transformation experts Ve n d igital. “Even in Europe, it’s not difficult to find suppliers who cut back. The result: there’s no longer enough slack in the system for them to be flexible enough for build-to-order.”

Also, some observers suggest that OEMs have focused more on reducing cost rather than improving supply chain visibility or delivery performance.

But whether it’s the result of cost cutting in logistics, or production shortages, an extended delivery lead-time can be a disincentive for dealers to sell higher-margin, option-loaded vehicles because of their longer delivery times, depriving both dealers and OEMs of much-needed revenue and profit.

“Take, for example, a car on a two-month delivery: add a few options and those two months can easily extend to four,” says Ben Waller, senior researcher at industry analysts ICDP. “It makes for a difficult conversation with the customer, and less of an incentive to sell options, as dealers will have to wait longer for the sale.”

Night deliveries and extended operating hours
Some OEMs have suggested a potential solution to reducing late deliveries would be to extend the hours during which dealers will accept incoming vehicle deliveries, to help clear backlogs that might have built up at ports, rail yards or distribution centres. Especially in North America, there have been calls for 24-hour vehicle acceptance, seven days a week.

The logic is clear: operating at night, or at least outside regular business hours, can reduce hauliers’ fuel burn and also speed up the average time taken to each drop-off point, reducing average driver hours per delivery. Such a system would have particular benefits in urban areas.

With US sales on pace to cross the 15m mark for the first time since 2007, that improvement in utilisation would help the industry deliver affordable transporter capacity, when other routes to growing transporter capacity seem closed off.

Mike Riggs, chairman of Jack Cooper Holdings, one of America’s largest car hauliers, points out that the number of car transporters in the US market has been stagnant at 9,000 – a drop from 12,500 or so before the financial crisis hit, although there are recent signs that carriers are buying new equipment. “I’ve never seen it more difficult to borrow money [for car haulers],” he says. “You used to be able to put 10% down, but now you need to put 40-50% down. You can count the number of carriers with 100 trucks or more on two hands, so this is an industry with 2,000 small competitors, and most of them struggle to find lenders.”

Overall, Riggs estimates that the industry is short of 3,500 trucks and trailers, which would cost $875m collectively.

“Nobody in the sector has the money to pay for this,” he says. The obvious solution, at least in the eyes of OEMs and their logistics partners, is to make better use of the existing fleet, through improved utilisation and extended delivery hours.

But dealers don’t necessarily see it that way. Many of them already have their hands full responding to other initiatives from carmakers, says Albert Gallegos, director of international affairs at America’s National Automobile Dealer Association (NADA). “Dealers’ top concerns remain meeting their targets, then dealing with auto manufacturers’ requirements to train sales and service personnel,” he says. “And recently, too, there’s been a lot of emphasis from brands in terms of upgrading dealers’ facilities. That’s a huge thing right now in the United States.”

Yet there is hope for extended hours, he acknowledges. As vehicle sales rise, a drive to improve customer satisfaction metrics has led many dealers to hire more service and repair personnel so as to extend the hours of operation of their service departments. “There are people at the dealers for longer hours, which provides the transport people with an opportunity,” he notes. “It’s not a question of dealers’ actual willingness to take cars out of hours – it’s more the fact that extended hours of working in the service department provide an opportunity to have a discussion.”

European woes
In Europe, the situation is entirely different. Car transporter capacity, for one thing, is a much less pressing concern considering the declining European market. Even the once buoyant Russian market, where sales have climbed by 10% a year or more over the past three years, is expected to stagnate in 2013. While OEMs are broaching the question of out-of-hours deliveries, dealers are in no mood to increase their own costs in the aid of reducing logistics cost.

“There is certainly evidence of requests being made, but from what I can gather these are fairly fiercely resisted due to there being no staffing present outside of normal opening hours,” says Phil Maddison, group board director at 25-location, multi-franchise UK dealer group Snows Motor Group. “From a logistics company perspective it would be great, with driving in quieter conditions and less disruption when unloading, but from a dealer viewpoint it would be totally unacceptable, except for the very small minority who operate a 24-hour opening regime.”

ICDP’s Waller also points to local anti-noise and zoning regulations that would limit the extent to which dealers can open for vehicle deliveries. More vehicle inspection would take place in the dark, risking damage being missed, and while ‘unattended’ vehicle drop-off has been proposed as an alternative to having dealer employees physically present, not every dealer has the space to erect a secure compound.

More flexibility and visibility
According to CECRA, the European Council for Motor Trades and Repairs, there are other considerations that OEMs and logistics providers could spare for dealers. CECRA’s director-general Bernard Lycke, for instance, would like to see more recognition by carmakers of the price dealers pay to finance the interval between vehicle reception and sale, which can have a considerable impact on an already low profit margin.

Lycke also calls for flexibility from OEMs over insurance claims for damage done during transit, as well as a greater willingness to take back onto their own books vehicles which dealers have been compelled to take, and which may actually be unsalable by the dealer in question.

But most pressing of all is the perennial bugbear of late vehicle deliveries and the lack of notice thereof. “If a vehicle is late by a few hours, then it is unlikely to cause any real issue except in very rare circumstances,” says Snows’ Maddison. “But if the vehicle is late arriving to the tune of a couple of days, then this can cause horrendous issues.”

“Speak to dealers, and the most important thing is delivery date accuracy, even more important than overall lead time,” adds ICDP’s Waller. “It impacts not only the physical processes associated with vehicle sales – such as pre-delivery inspection, de-waxing and putting on plates – but also trade-in values. If a vehicle’s arrival extends into another calendar month, for instance, there’s an impact on the dealer margin. And if the customer’s existing vehicle is leased, then he or she has to negotiate an extension.”

Dealers concede that advance warning can soften the blow – although the timescales spoken of may not appear feasible to OEM logistics managers. CECRA, for instance, would prefer that delays were communicated the moment that they were known, so that the end customer could be kept clearly in the picture as to what was happening.

In Russia, AVES Peugeot’s Podolskiy reckons two weeks is the minimum time required to resolve the situation, either by attempting to find a matching alternative vehicle or persuading the customer to change his or her order to a similar one that happens to be in stock.

Can you teach a dealer new tricks?
Another idea would be to provide dealers with a better understanding of the logistics and supply chain processes that bring vehicles to their door. Such knowledge might help them adjust their own order process and approach to customer services. However, for NADA’s Gallegos, dealers are unlikely to get this involved in logistics. “Dealers have so many other day-to-day things to do that logistics processes aren’t really front of mind,” he reckons.

But the idea has some merit, argues ICDP’s Waller, who notes differences in dealers’ propensities to sell vehicles to order – or with extensive option packs – even within the same brand. “Not all dealers make use of the dealer ordering system, because they don’t understand how the supply system works,” he observes. “Some dealers are more comfortable selling from stock, while others have become attuned to the margin on options and the attractions of selling to order.”

That said, the intricacies of OEM ordering systems are only a small part of the overall process that brings vehicles from the assembly lines to dealers’ lots, and dealers are sceptical of the need to develop a detailed understanding of these supply chains – especially so in the case of multi-franchise dealers and dealer groups, which would involve individuals mastering the intricacies of different processes for each brand.

An indication of the distance that remains between OEMs and dealers on the issue is given in CECRA’s blunt assessment of the situation as Lycke sees it. “We do not have a view on the logistic process: I do not think it is needed,” he insists. “It is the responsibility of the plant to have the vehicles delivered at the dealership on time, and in the correct order.”