Does Customization Have a Sweet Spot for Maximum Profit?

With automakers working to go back to normal operation as quickly as possible, it’s time to make some tough decisions

Body style, energy source, trim level, wheelbase length… everything is variable on the BMW 3 Series
Pick-up trucks, like this GMC Sierra, are another vehicle type with many customization options

You can have any color as long as it’s black

Henry Ford’s famous quote is a good case of exaggerating to make a point: one of his concerns when creating the Model T was to make it affordable, and that was achieved largely by minimizing its customization. Any option you add to a given product adds steps to its production process. Color choices, for example, imply stocking different colors of paint, grouping cars to make the machinery switch as little as possible, keeping a minimum number on each color ready to sell, and having a catalog for buyers.

High-luxury cars, like the Rolls-Royce Cullinan, focus their customization on bespoke modifications

Why is customization so popular, then?

Basically, because they increase the scope of each car model and, as a result, make them attract more people. For generalist cars, it reduces the price gap between each available option; buyers can decide how much they’ll effectively get of what they want based on how much they can pay for it. For example, if you like the Golf but want it in a sporty version, Volkswagen offers the R-Line accessory kit, the GTI dedicated version (with diesel and electric options) and the even sportier R version.

While the Passat doesn’t have as many sporty options as the Golf, you can still choose between the R-Line accessory kit or the GTE version

We’ve heard both sides. What’s the problem?

According to Betts, such quantity of options generates many unicorns, options which sold 50 units or fewer. Those cars “often linger on dealer lots and fail to justify the cost of manufacturing them”; they’re more useful to enlarge the list and impress the potential buyer than to actually make a profit. The article also remembers the Dodge Dart, released in 2012 with an online configurator and a long list of options: people would go to the dealership to buy it but ended up frustrated because it didn’t have one.

While the Scion brand failed for other reasons, a strong suit it had was restricting customization for dealers to sell and install

Tell me more about that

While Betts focuses on the USA, it’s possible to consider its findings at a global level: “the U.S. is a ‘sell-from-stock’ automotive market as opposed to Europe’s predominantly build-to-order approach.” The first business model mentioned is much more common because it aims to optimize logistics: dealers buy some versions of a car model than others because they sell faster. The second model consists of placing specific orders and waiting for the cars to arrive in order to actually conclude the purchase.

In Brazil, Renault cars are sold with a handful of versions and no independent options, so you can even buy them online

How can automakers deal with that?

Reducing the available options would simply erase the benefits customization has brought: automakers would lose sales and try to recover them by offering more car models; the same drivers would be satisfied with a more expensive solution. On the other hand, converting the entire process into built-to-order works only for luxury cars because they are sold in small quantities and bring high profit margins: generalist makers would hardly be able to execute it with costs as low as they need them to be.

The new Citroën C3 has hundreds of options for visual customization. Do you think dealers stock all of them?

What consequences would that have?

Dealers would have to stock more parts, but that would be easily compensated by stocking fewer cars: each one could be offered to more potential buyers, so they would be easier to sell. Besides, most parts could also be installed in used units. Demand for services would increase, but that’s actually a great thing: by properly scheduling each task, it could reduce idle capacity and even generate new jobs. When it comes to resale value, any customization affects it; that’s an entirely different issue to address.

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Danillo Almeida

Content writer and engineer-to-be who aspires to work in car design. If you like cars but not the stereotypes that surround them, give my articles a try.