Fiat-Chrysler has been overproducing vehicles including Ram trucks and Jeep. Like, 70,000 overproducing. It is now scrambling to dump them by the end of the year. The 2,400 dealers are being pounded by corporate sales teams to take these unassigned vehicles. The only way dealers are absorbing so many cars and trucks that they would have trouble selling and don’t want is through Fiat-Chrysler deeply discounting them. That means dealers are passing the savings on to customers to dump this unwanted influx. So Fiat-Chrysler screwed up and there are unbelievable discounts.
Two different stories for how this screw up happened
There are two different scenarios explaining how this costly mistake happened. One from Fiat-Chrysler and the other by knowledgeable insiders who have seen this game before. The official explanation for the unwanted amassing of 70,000 vehicles is specious. According to Bloomberg Fiat-Chrysler says it happened because of data analytics forecasting demand.
The problem with that is the vehicles produced don’t match market preferences which will make them harder to dump. So Fiat-Chrysler has to knock thousands of dollars off of the price of these orphans to coax dealers to take them.
The damage “sales banks” can have on manufacturers
The other scenario goes back years to when Chrysler used to overproduce to keep the lights on at its various manufacturing plants. It resulted in thousands of vehicles sitting in what Chrysler euphemistically called a “sales bank.”
These sales banks amounted to tens of thousands of vehicles sitting in huge fields around Detroit. Toward the end of each month, corporate salespeople would hammer dealers to take vehicles from the sales bank with heavy discounts. Dealers saw the monthly pattern and would not order cars and wait until it got the sales bank call. The dealers knew if they held out for more inventory until the end of the month, they could get some killer deals.
Selling vehicles at these discounts hurts company profits
Unfortunately for Chrysler, this began hurting profits. Sales were up but profits were down. It was a vicious cycle that took years to wean the company off of.
The simple solution for this happening is to merely cut production. But that means a lower return on the vehicle’s development costs. So, sometimes it is cheaper to overproduce vehicles and then use incentives at the corporate level to subsidize sales.
Is this really a side effect of its analytics?
Fiat-Chrysler says it doesn’t have a sales bank. It says it was a side effect of the analytics and that it actually saved them $445 million through the third quarter of 2019. “Our new supply chain management strategy based on predictive analytics continues to work well for us, even as we continue to refine it,” says Niel Golightly, Fiat-Chrysler’s global chief communications officer.
Now, the company is doing a number of things to push the unwanted iron to its dealers. It is offering employee pricing that many say is the most heavily discounting it has seen in years. It cuts 5% off of the price to dealers and adds additional discounts on certain slower-selling vehicles.
The big problem facing Fiat-Chrysler, besides having to cut prices to dump this inventory is that most of the dealers don’t want these vehicles. They say how the vehicles are configured makes them much harder to sell. Maybe it’s an unpopular color or it has certain options that buyers don’t want to pay for.
Now the corporation is limiting dealer orders to help it dump sales bank vehicles
Because of dealer pushback, Fiat-Chrysler is limiting the number of vehicles each dealer can order. It makes up the difference with sales bank units. And, there may be no end in sight.
Internally some are saying the company is leaving it up to the analytics to determine how vehicles are configured instead of how the dealers want to order them. While on initial observation it looked like a costly production error it might be the norm going forward.
The bottom line is that there should be massive discounts on many Fiat-Chrysler units from now until the beginning of 2020. If you’re looking to purchase a new Jeep or Ram truck you’re hitting it at just the right time.