News that Mercedes-Benz will follow other automakers in scaling back the complexity of its offerings in the U.S. makes it official: We have a trend.
Facing an array of challenges including rising interest rates, trade uncertainty and regulatory compliance costs, automakers are trimming their lineups to maintain their profit margins, shedding the costs of slow-selling or low-margin vehicles in hopes of riding out what many see as a coming contraction in sales in this historically cyclical industry.
It all makes perfect sense if you're an automaker: You wake up after what's been a very long, very nice ride of rising sales to realize that maybe some of the product decisions you made during that run didn't quite have a fully fleshed-out business case. "Time to get the house in order," you think, so naturally you start to cut the niche models that didn't sell very well, or eliminate powertrain variants or a trim level or two — all to drive down costs.
And hiding in the shadows of each perfectly logical cut, franchised dealers receive fewer offerings with which to lure consumers into their showrooms.
Automakers have every right to run their businesses as they see fit to best benefit themselves and their stockholders. But the decisions they make are not made in a vacuum — they have an effect on their partners up and down this industry's value stream.
If an automaker saves significant capital by reducing manufacturing complexity, for example, it is incumbent upon that automaker to share those savings, at least in part, with those who must live with the consequences of their decisions, including suppliers, dealers and consumers.
Fewer trim levels, for example, might mean more standard features, making a vehicle easier to sell so long as the savings from the reduced manufacturing complexity is passed on in the form of lower pricing.
Or if an automaker pulls out of a segment because of declining sales or slim profitability, they should recognize that their dealers are likely to lose some customers to competitors who remain. While product cuts might look good on an automaker's quarterly P&L statement, they have consequences.
And for the decision makers, it's best to remember that someone standing on a lot someplace will have to live with your choices.
