Auto Supply Price Wars: What’s in Store for the Vehicle Supply Industry

By Justin Stoltzfus
Friday, Aug 19 2011 14:29

If you’re planning to go to the lot to look for a new vehicle in the months ahead, should you also be considering the overall state of the American car industry? Along with specific price and financing research, it can be a good idea to keep a finger on the pulse of what’s happening within the domestic auto market, if only to understand your purchases, including original vehicle sale and cost of ownership, in a fuller market context. A new report from Case Western Reserve University’s Weatherhead School of Management provides some of this context with a report called “The U.S. Auto Supply Chain at a Crossroads.’

The “crossroads” mentioned largely refers to the current relationship that researchers observe between car makers, which are huge, established and prominent companies well known to the public, and some other companies that toil largely unknown in the background. Researchers identify “tiers” of auto supply companies, with “tier 1” or direct suppliers making OEM or original equipment. Smaller firms often add to the supply chain indirectly, with aftermarket or generic parts, or in contracting arrangements. What researchers found was that many of the big firms putting the cars together may be squeezing their second party or third party suppliers, fighting over profit margins, rather than coming together to provide the best efficiency and brainstorm win-win situations that reduce costs on all levels of the supply chain. The Case Western research report posits that the auto industry as a whole has two choices: start collaborating, or fall deeper into price wars that could affect the entire market.

This kind of conflict might not directly affect your trip to a local dealer’s lot, but over time, it’s not unreasonable to think that auto supply price wars could affect dealer invoice. But the larger take-away here might be that, just like car companies and their suppliers, dealers and customers are often at loggerheads over price. You might not think about buying a car as similar to business-to-business negotiations, but experienced car buyers who get their vehicles from dealers usually come to understand that a detailed, almost professional approach to car buying is often in their favor, and “just showing up” is not likely to work out well. For those wondering what this approach might look like, it starts with knowledge of market context as mentioned above, but also includes close observation of month-to-month model pricing, for instance, knowing about local and national inventories, as well as consumer reporting on brands and models. Then there’s the financing end of the equation: one way that buyers can almost always save considerable sums of money is by understanding all of their options available from third-party lenders, and asking the tough questions at the dealership about dealer supplied financing products. More often than not, buyers will find that the standard dealer financing agreements include a lot of markup, and even occasionally deceptive uses of a consumer’s credit score. That’s not to say that every dealer is out to practice predatory lending, but basically, it’s incumbent on the borrower to make sure that the deal that they sign reflect their needs and is in their best interests, just like the auto supply companies need to look out for their own financial health when setting wholesale prices with bigger fish.

 

 


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