QOTD: Why Do Automakers Care So Much About Sales?

Doug DeMuro
by Doug DeMuro
qotd why do automakers care so much about sales

I always get a little dismayed whenever I hear a car company talking about sales volume targets.

Yes, sure, reasonable sales targets are OK. Acceptable sales targets. If Toyota wants to say they’re going to sell one billion Camry units this year because they sold 997 million last year, that’s fine with me. If Honda wants to say they’re going to sell 950 million Accords this year because they’re contractually obligated by a higher power to slightly undersell the Camry, that’s fine too. And if Dodge wants to say they’ll sell 100,000 Grand Caravans this year, of which 99,000 are going to Enterprise, and the remaining 1,000 are going to people who don’t know any better, I guess I can accept that.

But I’ve never really understood why automakers set insane volume targets that keep them desperately reaching for sales for the next few decades.

Probably the best example of this is Volkswagen, who announced several years ago that it would sell 800,000 vehicles in the United States by 2018 from its Volkswagen brand alone. This seemed like a totally reasonable goal at the time, because they had just introduced the new Passat, and they would soon be coming out with an SUV, and they were finally starting to understand the US market, and sales were really taking off. Well, last year, they managed 367,000 units, down from 407,000 last year and 438,000 the year before. In other words: 800,000 ain’t gonna happen.

So now Volkswagen is backing off its sales goals, and it looks like an animal retreating from a fight with its tail between its legs. But why did they have to make the goal in the first place? This, I’ll never understand.

I noticed this a lot when I worked in the car world. Automakers were so hell-belt on sales targets and volume goals that they were doing everything they possibly could just to meet these numbers. Fifty fleet sales? A hundred fleet sales? A thousand fleet sales? Turning over employee lease cars more often? Discounted leases? Zero-percent financing? Punching cars as sold the moment they came off the boat? Fortunately, my company never even considered doing most of those – but some automakers weren’t above even that final strategy during the very last weeks of the year.

Here’s what I’ve never understood: it isn’t sales numbers that prove your business is successful. It’s profit. So why the hell are so many automakers targeting sales, and not profit?

The truth is, anyone can sell anything. Pull a random person off the street, put them in a car dealer, and they can sell the entire lot empty in two days if you let them offer their vehicles with a complete disregard for profit. But then the business’s lights won’t stay on, the stock will plummet, the employees will get laid off, etc. etc. etc. It goes on.

From what I understand, Honda seems to be doing it right. My entire life in the business, I’ve been told that the Honda Accord could easily outsell the Toyota Camry, except that Honda refuses to give in to the pressure of profitless, or low-profit, high-volume fleet sales. And this seems to be true: consider every airport rent-a-car station you’ve ever been to, every Enterprise lot, every Budget kiosk. There’s never Honda there. You’re never given a Honda, you never see a Honda in the lot next to you, or the space down the row, or pulling out of the rental car gate. But you do see Toyotas. Honda seems to know these fleet sales are only a way to burnish sales figures, not actually make money. And they’d rather sell those cars to actual consumers at actual dealers who will bring them actual profits.

So I’ve always been curious about this, and now I’m asking you: why the hell does the auto industry focus so severely on sales numbers? Most other industries talk profit: year over year growth, net profits, gross profits, operating income. But in the car industry, we talk sales: overall sales, monthly sales, total sales, with no apparent care in the world whether those sales are making $10,000 per car or $20 per vehicle on a 30-car transaction with Enterprise. Me, I’d rather hear about profits. No, Volkswagen isn’t going to hit its 800,000-car figure. But are its profits increasing? Is it a stable, healthy company? Are they making money? Only then will I be impressed.

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5 of 78 comments
  • Turf3 Turf3 on Jun 26, 2015

    Commenting on Glenn Mercer's points above: Key to the decisions a company makes is its accounting system - how they account for fixed and variable costs. Decisions made about accounting will later drive decisions up and down an entire organization. It would be interesting to see how product and marketing decisions are made in, say, GM vs. Fiat vs. Toyota vs. Honda (volume producers all, with a range of profitability) and on the other hand Mercedes-Benz vs. BMW vs. Jaguar Land Rover vs. (I don't know, someone else)(low volume producers). And to see the variations among their accounting systems. Just a quick example: At one point I worked for a company that moved from charging overhead to purchased parts, to not charging overhead for purchased parts. It's pretty easy to see that whereas on Friday the company could improve the numbers by improving plant floor efficiency and insourcing parts so as to stop paying outside vendors' profit margins, on Monday it looks like you need to start outsourcing parts so they will cost less, because outsourced parts don't bear overhead. Even though the actual cost to produce has not changed between Friday and Monday, the accounting change has motivated a change in policy. Shareholder value in my opinion has almost nothing to do with the quality of a company. 40% profit on $1M sales vs. 4% profit on $100M sales? Very different results. I'm not saying all companies should chase volume. In fact, most shouldn't. But the question, "why do mass production auto manufacturers chase sales?" could be answered in a couple of sentences by anyone with even the most basic understanding of cost accounting.

    • See 1 previous
    • Pch101 Pch101 on Jun 26, 2015

      @Glenn Mercer "but the companies don’t chase revenue, they chase units." Read an annual report from an automaker. They spend plenty of time talking about various forms of margin and return.

  • Domestic Hearse Domestic Hearse on Jun 26, 2015

    A few more articles like this and we'll find out if anyone off the street really can sell cars. Doug will have to find his pants first.

  • MrIcky I like the 78 concept. I like the safari type top on the purple one but I don't like that color, I want to like the warth...scrambler concept but it doesn't quite do it for me. I'd like to try the magneto.
  • Tassos GM, especially under the sorry reign of socially promoted nobody Mary Barra (who would not have a chance in hell being appointed the CEO if she was a MALE) has done far dumber and sillier things than that, wasting BILLIONS on 'cruise' and expecting it to make it $50 billion, remember? THey do not mention the name much these days, the clowns at GM, do they?
  • MaintenanceCosts I notice that the pictures don't show the dash or the door cards, two places where you'd be most likely to notice interior disintegration on a VW of this vintage.Looks nice on the outside but I wouldn't touch it.
  • SilverHawk At least in the short term, this is simply going to cause more anxiety among the more technology shy consumers looking to buy a new vehicle. Especially when this is not being done for the benefit of the vehicle owner, but for the convenience of GM's marketing department. Personal data security is an extremely important issue in today's world.
  • Ajla I don't think I'd be able to part with something I kept for 23 years. Especially as the only owner.