Auto dealers and auto makers have been faced with a dilemma this summer. Although sales have been down, partially due to the cash for clunkers program from last summer, the demand has still been there. In a recent survey conducted by Automotive News, 73% of dealers reported that they did not have enough new vehicles in stock, and were losing sales as a result of this. Here is the dilemma. Profits have been posted with the current strategy implemented by the auto makers, which has been to not over produce and sell more vehicles at a lower price, but to produce the amount of vehicles that they expect to sell, and sell these vehicles at a higher price. They can continue to play it safe with this strategy, or take a chance at recapturing those “lost” sales due to lack of stock, and produce more vehicles, believing that they will be able to recapture those lost sales. This is a chance that could be quite profitable, or end poorly if the real demand is not in line with the projected demand. With the economy in the current state that it is in, I don’t expect to see them take this chance, but I’m not so sure that it’s the right decision to play it safe here. What do you think?
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