Lamborghini Keeps Supply short of Demand

Italian automaker Lamborghini is keeping a watchful eye on the Chinese, Russian, and Indian markets. Many people in these markets are looking to buy expensive vehicles, and the company is aware of the potential profits that could be made. Lamborghini would consider it a success if they were able to sell 20 to 30 cars in each of these developing countries. This is because an average Lamborghini sells for around $275,000. At this price, the company is able to make substantial profits. This is evident since sales and profits have increased in the past five years. Lamborghini CEO Stephan Winkelmann said that the company tries to keep supply shy of demand. He claims this causes strong loyalty among buyers. In my opinion, this is a very smart way to do business, as long as the company is still making a profit. By keeping supply down, they are guaranteeing a future market for their vehicles. Assuming the buyers are loyal to the Lamborghini brand, they will be willing to stay on the waiting list. They may have to wait a year to get their new Lamborghini, but the cars are so rare, they figure it is worth it. This does mean that Lamborghini is losing out on potential profits. There are people willing to spend $275,000 on a car they are unable to find. Economists would look at this move as being inefficient, but I see it as looking to the future. While they might not have an immediate sharp increase in profits, the company will see a steady increase in profits overtime.