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Sales-hungry car industry is reaching options overload

The gap between volume and prestige models is closing, and the quality/specification baseline keeps rising, which means the pressure is building on carmakers to increase market share.

One perceived path to higher sales is fitting more models into the range, and offering loads of paid-for extras, but there’s trouble ahead: the automotive industry is fast approaching option overload.

Manufacturers are victims of their own design enterprise. Faced with massive development costs, they discovered how to spin many separate models off one platform. Confronted by retail buyers and fleet users demanding to make their car more personal, manufacturers are determined to offer more options than their rivals.

UK market leader Ford is a good example, says Jay Nagley, managing director of Spyder Automotive. “The number of derivatives has almost doubled between 1994 and this year, rising from 3,358 to 6,216,” he says.

Now manufacturers, dealers and fleets are starting to ask the same question: is the great models and options race out of control?

The trigger for the change was the internet, because online surfing makes some retail buyers more knowledgeable than dealer sales staff. Manufacturers seized a chance to get closer to customers by creating websites inviting people to ‘build’ their own car.

Now an increasingly well-off population is keeping annual car registrations at around 2.5m while showing they can be as choosy when buying cars as shopping for DVD players, wine or conservatory furniture.

Alan Pulham, franchised dealer director at the RMI, says: “Manufacturers are driving up the number of models and options, and this is a real issue for their dealers who can end up never having quite what the customer wants.

“The industry once thought the best idea was build to order, because if you can make that work, the number of options is almost irrelevant. But we seem to be going back to build to stock, and that is making life difficult for dealers selling brands with extensive ranges.

Premium brands like Mercedes and BMW are becoming volume brands but continue to offer the options. This means dealers have demonstrators with lots of extras whose cost is not recovered at disposal.”

It also means sales staff have to learn about a huge selection of models and options – an impossible task which can led to poor CSI scores. One solution is to encourage sales staff who focus on a limited number of models. Lexus does it in the US, where a member of the sales team will specialise on just two models, getting to know everything about them. Mercedes-Benz, which has a proliferating model range, is believed to be considering a similar concept in the UK.

Dealers are feeling the pinch with volume brands, too. Colin Hainstock, chairman of Harrogate-based Nidd Vale Group, whose franchises include Vauxhall, says: “There are 10 optional packs on the new Astra, and that’s in addition to the list of extras. They include adaptive front lighting, which costs £750. You have to show it to people, and we’re not going to get the cost back on resale because the demonstrator allowance is barely adequate.

“The Astra is selling well, and Vauxhall wants people to see how there are options associated with bigger cars. But we were quoted six to eight weeks for a car ordered with lots of extras and it arrived after five months. The customer cancelled the order and now we have a £20,000 Astra to sell.”

Some groups, including Reg Vardy plc, welcome the growth in ranges and options.

“We aim to increase market share and are excited by expanding model ranges which give us the opportunity to keep customers ‘within a brand’ by offering more choice and encouraging loyalty,” says a spokesman “It gives us a marketing challenge, in conveying the breadth of models available while trying to match products and customers, but it is one we relish as we aim to increase our market share.”

A more detached view of the rise in models and options comes from the City. Goldman Sachs points to the huge R&D costs of Mercedes-Benz and its fall in European margins this autumn to 2.5%, the lowest on record.

Max Warburton, Goldman Sachs’ global investment research executive director, wonders whether Mercedes is overspending on R&D as it fights to protect its pricing. “German carmakers lead with technology and others follow at a lower cost,” he says.

Mercedes first fitted a Robert Bosch ABS system as a cost-option on its most exclusive models in 1978: in July this year, anti-lock brakes became standard on all new cars sold within the EU. Now, the pace of change on options from minority to mass production keeps getting quicker, which makes it more and more difficult for manufacturers to justify the higher price of some brands.

Warburton queries the wisdom of Mercedes’ complex options list and cites the 2002 E-class, with two bodies, 15 power trains, 285 paint/trim options, 70 factory-fit options. Total variations come to a mind-boggling 3,347,807,348,000,000,000,000,000 (more than three septillion). Total European sales? 157,584.

Compare that with the Peugeot 206 that sold almost four times as many units (596,531) in the same year. It had three bodies, eight power trains, 70 paint/trim options and five factory-fitted options. Total variations: 1,739.

According to a survey by McKinsey Automotive Practice and JD Power, cars with a high electronic content perform worst because the architecture and capability is inadequate to add new features without sacrificing quality.

Mercedes-Benz UK sees things differently. “People demand a car to suit their personality which is why Mercedes provides lots of options,” says spokesman Rob Halloway. “They don’t want something that doesn’t fit their lifestyle. We have a reputation for leading on technology which is why Daimler-Chrysler group spends £10m a day on R&D.”

The ultimate Mercedes comes with Designo, which allows a customer to add distinctive features, including an exclusive exterior paint colour. “That could be bright orange but our retailer offers guidance on the impact on residual values,” says Halloway.

Nissan takes the minimalist option route. Bambos Kouyiounta, UK Primera and Almera brand manager, says: “We aim to offer a proper value position, by keeping factory options to a minimum and including ‘extras’ within the list price. Buyers want simpler specifications and options.”

Compiling a list of best-selling options is difficult because manufacturers are reluctant to disclose data, says Neil Hall, analyst, at Jato Dynamics. Option packs make most sense for manufacturers, who save money, because an auto-dimming interior rear-view mirror can be linked to rain-sensing windscreen wipers.

“Dealers have to estimate which separate extras or packs will sell over the coming year before placing orders, and that can be difficult,” says Hall.

“Years ago, manufacturers under-estimated demand for ABS which meant dealers could not supply cars people wanted by a particular date. Dealers have to keep their stock down, and so may order models with only two trim levels. They have to keep track of what others in the network have, and buy from them when necessary.”

Hall believes electronic units will be the most influential part of future options lists. “They are often the cheapest way of increasing a car’s appeal though it depends on the age of the customer,” he says.

“Young people who have grown up with computers probably have a lot more faith in them than older people.”

More options are bad news in the influential fleet sector, however. They have to maintain huge databases to keep track.

Chris Chandler, consultant to Fleet Audits, which advises decision makers, believes carmakers have “overcooked” the level of choice. “Even without options, there are more than 7,000 derivatives in the UK. It’s a stunning total and more than any other country,” he says. “There is too much choice, though some carmakers are starting to drop derivatives.”

And options often make little impression on residual values, according to Mark Norman, managing editor, CAP Monitor. “They look good to consumers but the cost of many of them – such as leather trim – is not reflected in the residual values.

Some aren’t needed, like an engine with 100/130bhp power alternatives, which doesn’t make a big difference. Manufacturers will charge a premium for a larger engine, but it will add nothing to the RV after three years.

“Novelty options such as adaptive headlights and lane-change alerts make a difference to a marketing department but people quickly get used to them.

Of course, some new ideas are best forgotten – like the Maestro’s talking facia and Allegro’s square steering wheel of many years ago,” Norman adds.

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