||The Coming Year-End Automotive Share War
As Stock Rebuilds from Japan's Disaster, Dealers Expect Scads of Ads and Big Incentives
As supplies of Japanese-brand vehicles start to return to normal, U.S. car dealers expect automakers to spend hundreds of millions more on incentives and advertising in an attempt to salvage 2011.
Spending should soar in the fourth quarter, about the time vehicle inventories return to normal, said leaders at some of the nation's largest dealership groups. Add important fall vehicle launches -- notably the redesigned Toyota Camry -- and look for a drive to grab market share and a year-end surge in vehicle sales.
Summer remains a problem. Inventories have grown in recent weeks, but some retailers say they still have only half their normal supplies of Japanese-brand cars and trucks because of the catastrophic March earthquake.
"You will see one hell of a manufacturers' price war for final 2011 market share" if vehicle inventories and the supply pipeline reach pre-earthquake levels before Dec. 1, predicts David Wilson, president of the big David Wilson Automotive Group in Orange, Calif.
Other retailers avoid the term "price war," saying manufacturers will try to hang on to some of the additional margin provided by the shortages. The vehicle shortage has allowed factories to reduce incentives and dealers to increase gross profits.
But some falloff in dealers' new-car grosses is inevitable as supplies grow, retailers say.
Executives at top dealership groups AutoNation Inc., Penske Automotive Group, Group 1 Automotive Inc., Asbury Automotive Inc. and Hendrick Automotive Group all expect incentives to rise when supplies fully recover.
Largely because of Japanese vehicle shortages, market shares have changed dramatically this year.
From the first quarter of 2011 to the second, postquake quarter, Japanese automakers lost 6.7 share points, to 32.1 percent of the U.S. market. Toyota alone lost 2.6 points, to 11.6 percent.
Major gainers from the first quarter to the second were Hyundai-Kia, up 1.7 points; Ford and Chrysler Group, each up 1.4 points; and General Motors, up 1.1 points, according to the Automotive News Data Center.
Asbury executives expect big incentives during the final three months of the year as Japanese brands fight to regain that lost share.
"We are very much looking forward to the fourth quarter," Asbury CEO Craig Monaghan said. "If you're a manufacturer who lost share, you're going to be aggressive. If you're a manufacturer who has gained share, you're going to fight hard to keep what you have."
Group 1 CEO Earl Hesterberg said Toyota and Honda have made it clear they will compete hard to win back share.
Dusting off the ad budgets
AutoNation CEO Mike Jackson said manufacturers that cut marketing during the vehicle shortage now are under budget and will want to spend the budgeted money to hit year-end sales targets.
"And we have thousands of customers who have told us they're waiting for both the specific vehicle they want and/or different incentives," Jackson said. "So I think they all come back into the market."
For December, he predicts an annual selling rate close to 14 million units. May and June, reflecting the earthquake's impact, had a disappointing annual rate under 12 million.
Bob Carter, general manager of Toyota Division, noted that Toyota has stayed in the "incentive game." But he says Toyota and Honda are at the low end of automakers' incentives.
"You will see us stay aggressive and keep our cars competitive," Carter said. Except for the Tundra pickup, which requires cash rebates of at least $2,500, large cash offers are not part of the strategy, he said. Toyota will choose discounted leasing and low finance rates.
Toyota already has increased incentives, some retailers said. According to industry researcher TrueCar.com, Toyota's per-vehicle incentive spending soared 36 percent from May to June, to $1,900. That put the automaker back near the incentive spending it carried during the first few months of the year.
The industry average in July was $2,418 per vehicle, down 15 percent from a year ago, TrueCar.com said.
Ford CFO Lewis Booth said last week that the company is bracing for runups in industry incentives as vehicle inventories are replenished in the second half. TrueCar estimates Ford is spending $2,747 per vehicle.
Will Perry, an analyst with Dataium LLC in Nashville, predicts fourth-quarter promotions will be pitched as year-end clearance offers.
Dataium tracks online automotive shopping activity, such as Web site traffic, vehicle searches and generated leads, to predict sales. Current online activity suggests sales will rise this fall, Perry said.
Shopping intensity for Japanese brands diminished after the earthquake, he said.
Dataium's July report showed shopping intensity up 15 percent from May to June for the Japanese brands as a group. In June, Web sites of Honda and Toyota dealerships generated 21 percent more leads than they did in May.
Before enjoying a year-end surge, manufacturers and retailers must get through the third quarter.
U.S. inventories were at a 54-day supply at the beginning of July, pulled down in part by a slim 45-day supply for Toyota Motor Sales and a 35-day supply for American Honda Motor Co.
"The next 30 days are still going to be difficult with regard to availability," said Tony Schnurr, president of the auto division at Larry H. Miller Group of Cos., a large dealership group in Salt Lake City.
Supplies will be tight for the next couple of months, particularly for Honda. Nissan and Toyota are further ahead, even back to normal supply on several vehicle lines, they said.
Lithia Motors Inc. projects that Japanese inventories won't return to normal until the first quarter of 2012.
At Sonic Automotive, Jeff Dyke, executive vice president of operations, said his group should have normal Toyota stock in August and normal Honda stock by September: "We're going to get a lot of inventory."
But as of last week Sonic had only a 10-day supply of Hondas and a 30-day supply of Toyotas.
Even when supplies return and competition heats up, Dyke thinks manufacturers will be smart about incentives: "Why should you pump up incentives when you have demand?"
(Source: Automotive News, 08/01/11)
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