New Industry Mantra: ‘Less Is Best’
By Steve Finlay WardsAuto.com, Feb 3, 2007 3:52 PM

LAS VEGAS – Gary Dilts, during a Power Point presentation, shows a photo of a little boy standing in a corner of a room, face to the wall, looking as if he’s being punished.

“That was me all six years running the sales division of Chrysler (Group),” quips Dilts, who in June lost his job when he reportedly opposed pushing unwanted inventory on dealers because the auto maker was producing vehicles beyond demand.

Now a senior vice president at J. D. Power and Associates, Dilts cites an industry “first” at his new employer’s annual conference being held here in conjunction with the National Automobile Dealers Assn. annual convention that starts today.

Dilts says this is the first time in the auto industry’s history that “more equals less,” as domestic auto makers scale down their operations in face of fewer sales and smaller market sales.

Hefty incentives served as a tourniquet for a while, he says, but they became too expensive and provided diminishing returns to the point where “everything went wrong.”

Dilts, a 30-year auto sales veteran, says the industry finally is seeing a sane approach to incentives, using them less liberally as a means to move the metal.

Gary Dilts

And there’s a lot of that to move, he says, citing overcapacity: “For every three cars sold, three can be built,” and an abundance of nameplates – 331 – in the North American market.

That number of offerings creates marketing difficulties in trying to make a vehicle stand out in the crowd, Dilts says. It also presents problems for quality-control engineers faced with a plethora of new-vehicle introductions.

American consumer tastes are gravitating towards big-box stores, “and we’re seeing the same thing in the retail car business,” he says.

That has led to the creation of major dealership points in key markets, such as the Chrysler-Jeep-Dodge mega, which lower marketing costs and require less inventory.

Combined dealerships also lead to higher gross profits and return on investments for dealers, who often are the ones that pay for the auto makers’ capacity excesses.

At the same time, “dead stock hurts everyone, including the manufacturers,” Dilts says, suggesting auto makers stop forcing slow-moving vehicles on dealers and, instead, letting dealers “order what they need” based on sales demands in their markets.

He credits dealers for knowing how much inventory to order and whether to expand facilities to accommodate growth and new opportunities.

“Dealers are smart,” Dilts says. “Dumb people are not building these major facilities, such as a new $25 million Chrysler-Dodge-Jeep store in Florida.

“It’s a tough business, and it’s a fight for survival,” he says. “But it is also a trillion dollar a year business, and it’s not going away.”

sfinlay@wardsauto.com