Risk Management through Flexible Capacity Allocation and Price Control – Auctions in the New Car Sales Process

Auctions are already used in the automotive industry on a regular basis in two areas. They are applied in used car sales (cf. Yaron 2008, p. 325 ff.; Berger 2009, p. 10 ff.) and in procurement as reverse auctions, in which suppliers bid to win the order (cf. Talluri/van Ryzin 2004, p. 243). In sales of new automobiles there is no comprehensive application of auctions in place so far. This research proposes a model for a forward auction with one supplier and a large number of bidders for the indirect sales of new vehicles aiming at risk reduction in a manufacturer’s sales channel. Based on characteristics of indirect car sales, the auction model is defined and explained by a process flow. Based on the proposed auction model, challenges are discussed and solutions are suggested.