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Ummm... Isn't it the other way around? (archive)

[ Follow Ups ] [ 3-series (E46) Message Board ] [ Msg. Board FAQ ]

Posted by Lorenz on April 18, 1999 at 05:31:35:

In Reply to: No rules; But presumably, inventory is always chea posted by Ran on April 17, 1999 at 11:23:27:

: No rules; But presumably, inventory is always cheaper than what has to be ordered. Just common sense. Exceptions apply based on other factors like year, timing, etc. etc. but in general..

This is my understanding of how the whole ordering process works:

The dealers are allocated certain production slots of cars. When they get these allocations, they specify a set of options that they think will be popular and give them some variety. These are the cars that might end up in inventory, unless they are sold before they arrive.

When you "order" a car, what you're doing is changing the options on a car that's already allocated to the dealer, and that may already have a certain set of options ordered for it (by the dealer when they did the original order). The only catch here is that you have to change the options on a car that's going into production several weeks in the future, to allow BMW to order the parts from their suppliers for the options you're ordering, etc. etc. etc. Basic supply chain management. A certain time before the car actually goes into production, the options are locked in, as BMW then goes ahead and actually places the order for the parts. So there's no special overhead associated with ordering a car -- in effect, each and every car that's sold is "ordered". It just depends on who specified the options.

Now, once the car arrives, you pick it up and pay for it pretty much immediately, i.e. the dealer sees cash almost the same instant when they paid BMW for the car. This means that they don't have to borrow money from the bank, paying interest, to pay for it. A car that goes into inventory is paid for by the dealer when they get it (with borrowed money), so the car is eating up profits (in the form of interest due on the loan) just sitting there looking pretty. To a certain degree, this is covered by "pack" (dealer holdback), but on a car that's sold immediately, holdback turns into instant profit. This allows dealers to reduce the amount of money they charge above invoice -- they already get to keep all the holdback money, and don't pay interest on a loan, or pay for storage space while the car sits in inventory ("flooring charge").

Someone correct me if I'm wrong. Jon, Rick?

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