Wednesday, June 8, 2011 | Edited by Daniel Moores
||Standoff: No Incentives, Thus Few Buyers
Slow May Sales Could Set the Tone Until Fall
Unless the factories break out big advertising and incentive programs -- and don't look for that anytime soon -- the slow sales of May are likely to continue well into summer.
Despite Toyota's marketing blitz last week, following its lousy May results, automakers and dealers don't expect a big industrywide sales push until Japanese brands restock.
So the market is stuck in limbo -- a standoff between automakers unwilling to offer big incentives without adequate inventory and recession-hardened consumers willing to wait for fat spiffs.
The post-earthquake supply shortage for Japanese brands changed all automakers' approach -- no stock, no advertising, no incentives and "retailers letting the customer walk" rather than selling units without firm replacement dates, said Mike Jackson, CEO of AutoNation.
"That kind of pullback in a fragile economy with high fuel prices will have an immediate impact," he said.
The raw numbers were jarring in May. After eight straight months of double-digit growth, light-vehicle sales fell 4 percent from May 2010. The annual selling rate slumped to 11.8 million, down from 13.2 million in April. It was the lowest seasonally adjusted annual sales rate since August.
In addition, quake-related vehicle shortages skewed May results. The Detroit 3 grabbed half the market; Chrysler Group outsold Toyota/Lexus/Scion and Honda/Acura; Japanese brands lost 7.3 points of market share; and Hyundai-Kia gained 2.8 percentage points.
Buyers reacting to gasoline prices that peaked in mid-May at $3.91 a gallon switched to fuel-efficient vehicles, turning a supply shortage of Japanese small cars into a pinch point for the entire industry.
Average per-vehicle incentives fell to $2,017 in May, the lowest monthly level since 2002, said TrueCar.com.
And U.S. transaction prices soared to record levels: an average of $29,817, up $608 from May 2010 and $215 from April.
Those high prices scared off many customers, said Steve Landers Sr., a partner in RLJ-McLarty-Landers, a 20-store group based in Little Rock, Ark. "They're kicking the tires, but without incentives, new-car sales are slowing," he said. "It's getting harder to close the deal."
Japanese automakers are starting to restore production. But until stocks of in-demand fuel-efficient vehicles approach normal, it's a "battle of discipline" between consumers and producers, said Jesse Toprak, vice president of TrueCar.com.
Post-recession, automakers are determined to avoid another cycle of outproducing demand and then moving the surplus with heavy incentives. And wary consumers are willing to wait for lower prices on new vehicles, he said.
So who will break first?
"With stability, it's likely to be consumers," said Jeff Schuster, top forecaster for J.D. Power and Associates, citing pent-up demand, an aging fleet and manufacturers' learning to use incentives only tactically.
But Toprak said consumers will wait out manufacturers -- and in such a volatile market automakers must defend customer bases.
"They can't afford not to use incentives or their market share loss could be permanent." he said. "Toyota already has broken."
After its May sales plunged 33 percent, Toyota Motor Sales on June 1 launched a flurry of financing and leasing incentives on core product lines. That included 0-percent, 60-month financing or leasing deals of less than $200 a month on the Camry, which plunged from America's best-selling car to No. 8 in May.
Toyota's North American plants will return to nearly full production in June, said Bob Carter, general manager of Toyota Division.
"Our availability will be much stronger in June than it was in May," Carter said. "Increasing Prius production remains the top company priority, and Camry and Corolla will be back to full production in June."
Dealer Landers has no doubts which side will break ranks first.
"Customers know if they wait 30 or 60 days they'll get bigger incentives," he said. "They'll wait. We've trained them to be smart."
Restoring U.S. inventories of fuel-efficient vehicles won't be immediate.
"We could have a couple of additional months of lean sales," said Ellen Hughes-Cromwick, Ford's chief economist. "But we fully expect a good recovery."
Jackson also expects inventories -- and incentives and the sales rate -- to pick up in late July or August. He thinks fall sales will get a bounce from buyers who waited for better choices and prices rejoining the market.
The May slowdown won't reduce overall sales, he said.
"When Lehman Brothers failed in 2008, that was demand destruction," he said. "But this is just supply disruption. These customers are going to come back."
(Source: Automotive News, 06/06/11)
||Forget $4 Gasoline, Americans Purchase Bigger Cars in May
The rush by Americans to buy smaller, more fuel-efficient cars hit a speed bump in May.
New data compiled for Reuters shows the rush for vehicles with higher gas mileage is more restrained than three years ago, and is already beginning to fade, even as gasoline prices test their 2008 peaks and automakers tout an expanded lineup of gas-sipping cars, from plug-in Volts to 6-cylinder F-150s.
In May, the average fuel economy of new U.S. light vehicles actually fell for a second consecutive month to the lowest since January, even though gasoline prices only began to subside in the past few weeks, according to preliminary figures from online car-buying research website TrueCar.com.
That means that since January, average mileage has risen by just 1.4 percent to 21.9 miles per gallon; over the same period in 2008, it jumped by 6 percent to 21.2 mpg, according to TrueCar data compiled exclusively for Reuters.
To be sure, the slower rate of growth may be partly caused by the significant increase in overall efficiency in the intervening three years, a trend that has helped put a lid on gasoline use in the world's biggest oil consumer. Average efficiency is up by 2 mpg since the start of 2008.
And May sales also may have been influenced by the March 11 earthquake in Japan. Dealers had fewer cars on their lots last month with the Japan crisis keeping an estimated 40,000 new, smaller cars off the market, said Edmunds.com.
Even so, the sales trend jibes with other indications that the gas price required to change the behavior of U.S. consumers has risen over recent years, suggesting that world oil prices may have greater room to rise before they erode demand.
"By November of 2008, everybody had already gotten over $4 a gallon and were back to their old ways. It was a panic situation, people overreacted," AutoNation Inc. CEO Mike Jackson said. "People now feel they've already seen the movie. They've adjusted to it."
The price at which most car buyers would begin panicking and adjusting their buying behavior -- what Jackson calls the "freak-out number" -- has moved to $5 a gallon from 2008's $4.
This year's rise and fall in fuel economy mirrors the trend in 2008, when gasoline prices followed a similar pattern, and suggests that consumers may quickly revert to their vehicle of choice after a quick dash for more-efficient purchases.
Back then, sales of vehicles with higher gas mileage jumped from February through May, but declined thereafter, even before gasoline peaked in early July, according to the data. While the correlation is debatable, the outcome is important.
The industry's May fuel efficiency of 21.9 mpg was a retreat from April's 22.2 mpg, according to the TrueCar data based on actual sales and the Environmental Protection Agency's mileage ratings.
Drivers like Sara Lawler, a 42-year-old mother of four who drives a Suburban SUV, underlined the point.
"I drive this because I like the space and I've got a lot of kids," she said while filling up at a gas station near Whitestown, Ind. "I'm not going to switch to a little toybox just because it doesn't use as much gas."
1 MPG = 27,000 barrels a day
Improving the efficiency of new car purchases won't wean the United States off imported oil any time soon. But it may be an important indicator of consumer psychology that also affects how Americans drive, a much bigger factor for markets.
In practical terms, the fuel savings are small but not insignificant. TrueCar estimates that a 1-mpg improvement in estimated sales of 13 million vehicles would reduce consumption by 416 million gallons, or nearly 10 million barrels of oil. That's equivalent to only about a day's worth of gasoline consumption in the United States.
In trader terms it would shave about 27,000 barrels per day (bpd) off consumption; that would be enough to wipe out the expected rise in demand this year of just 16,000 bpd -- out of a total 10 million bpd. Long-stalled fuel-economy standards have long been cited as one of the reasons that U.S. gasoline consumption has grown quickly. Regulated Corporate Average Fuel Economy (CAFE) figures flatlined through most of the 1980s and 1990s up until 2005, as oil prices rose to $50 and beyond.
But the DOT expects sales-weighted CAFE figures to fall this year for the first time in five years, reinforcing the idea that it may take another significant jolt before more Americans shift away from their gas-guzzlers. CAFE figures differ signficantly from the TrueCar mpg figures due to the different ways of calculating efficiency.
"In general, gasoline demand is inelastic as prices fluctuate so consumers don't really change their (vehicle) purchases in the short term," says Sarah Emerson of Energy Security Analysis Inc.
Other indicators suggest consumers are taking this year's price rise in stride. Americans likely took just as many driving holidays this past Memorial Day weekend as they did a year ago, according to a AAA forecast.
The recent decline in average gasoline prices to the lowest in seven weeks may have helped, but at $3.79 a gallon, according to the Energy Department, gas is still $1.07 higher than a year ago.
'Super-size me not'
That said, no one expects May's disenchantment with smaller and more efficient vehicles to reverse the broader trend toward cars that will go further on a gallon of gas. For one thing, federal standards imposed last year require automakers to achieve a fleet average of 35.5 mpg by 2016, and the Obama administration may double that by 2025.
For another, even the most bearish oil analyst doesn't envision another abrupt collapse in prices that would pull gasoline back under $2 a gallon.
In May 2008, the market for small and subcompact cars surged to almost 27 percent, according to Edmunds. However, as the pain at the pump eased -- prices fell to $1.61 a gallon by year end -- Americans returned to pickup trucks and SUVs and the smaller cars saw their share slip back to 17.5 percent by December.
But more importantly times have changed, thanks to an improving economy, an expanding credit market, strong resale values for used vehicles and a far greater selection of cars that get over 30 and 40 miles per gallon, something that was more rare in 2008, analysts said.
"Before, they were stupid, dumb econoboxes that consumers bought purely for the price point or fuel efficiency," AutoNation's Jackson said. "Today, they're beautiful, exciting designs with great driving dynamics."
Even buyers unwilling to compromise their aesthetics or space are finding better options among more-familiar models.
More than half of the sales of Ford Motor Co.'s best-selling model, the F-150 pickup truck, included V-6 engines in May. At the beginning of the year, Ford only sold V-8s in those trucks.
GM dumped 26 lbs of spare tire and jacking equipment on its new Chevy Cruze compact in favor of a tire inflater kit. And 41 percent of the company's May sales sported 4-cylinder engines, up from 26 percent a year ago.
AutoNation's Jackson pointed out almost half the vehicles sold in May were powered by 4-cylinder engines, something he called unbelievable. In 2005, that share was about 30 percent.
Consumers will not completely turn back the clock to revert to their old habits.
"That shock that happened in 2008 sort of jolted people back to the reality of 'Fuel prices, I can't count on them being $2 a gallon forever,'" said Margaret Brooks, the marketing director for General Motors Co.'s Chevrolet Sonic subcompact car launching this fall.
Consumers are now prioritizing needs "instead of super-sizing everything," she added.
(Source: Reuters, 06/03/11)
||How Dealers Speed Up Customers' Buying Cycle
As the leasing business strengthens, more dealers are contacting customers with offers to get out of leases and loans early -- before the customers have begun shopping for their next vehicles.
New vehicles with attractive payment options -- often no more and sometimes less than the customers are paying -- are being offered to retail customers with equity in their vehicles and to lease customers with good payment histories.
Dealers who use factory and third-party programs to more efficiently identify and reach out to these customers are increasing sales and acquiring better used-vehicle inventory.
Curry Honda of Yorktown Heights, N.Y., sold about 200 vehicles last year to customers it courted through a system from Prospect Vision of Hickory, N.C. The system identifies dealership customers with equity in their vehicles and generates letters inviting them to explore getting a new vehicle at a lower payment or with money back. The dealership, which sold 2,700 new and used vehicles in 2010, started using the system nearly two years ago.
Inviting customers back before they're ready to shop for their next vehicle is a plus, says Mark Finch, Curry Honda's general sales manager. "It reconnects them with you. If you wait, they look at everything."
Fewer than half of customers who bought or leased vehicles last year chose their previous brand and of the more than 4.5 million new-vehicle buyers who returned to the market in 2009, just 30 percent were loyal to a dealer, according to R.L. Polk & Co.
Service customers, too
Curry Honda also uses the system to contact service customers, a huge potential sales market because there are about nine Honda dealers within 20 miles of the store, Finch says.
Prospect Vision systems are in about 200 dealerships nationwide, says Allen Levenson, vice president of sales and marketing. The system costs $500 to $800 a month depending on the size of a store and sales volume, plus less than $1 for each piece of customized mail generated.
Lehigh Valley Acura and Lehigh Valley Honda, part of the Vinart family of dealerships near Allentown, Pa., have used Xtream Service software since June 2010 to identify lease and finance customers eligible to trade up into similar new vehicles while keeping their payments the same or less with no money down.
"It's an apples-to-apples comparison,' says Andy Wright, vice president at the Vinart dealerships. He attributes an average 15 percent of the stores' new-car sales to Xtream, from HCD Software of Charlotte, N.C. Vinart's business development center sends marketing pieces created using Xtream templates.
Other products that dealers use to identify customers eligible to exit their leases or loans early include DealActivator from Intelligent Marketing Systems of Tampa, Fla. More than 400 dealers subscribe to DealActivator, which creates data lists and conducts first-class mail, e-mail and phone campaigns. The average amount of time that lease and retail customers have their vehicles before buying a new vehicle through DealActivator is just 31 months, says Alan Andreu, Intelligent Marketing Systems founder and general manager. Most dealers also see DealActivator as a way to boost used-vehicle inventory, he adds.
GoldDigger 2.0 software from eLEAD CRM of Valdosta, Ga., has about 3,000 dealer users, and 90 percent of them choose to have eLEAD's call center contact customers, says eLEAD owner Hugh Hathcock.
Equity Calculator, an add-on to Reynolds & Reynolds' ERA dealership management system, also helps dealers identify customers with enough equity to buy again. It has led to an overall 5 to 6 percent increase in vehicles sold, and those who purchase the product tend to stick with it, the company says.
In the early 2000s, Fletcher Jones Motorcars, a Newport Beach, Calif., Mercedes-Benz store, was so impressed by a tool a sales consultant was developing to identify customers who could exit leases early that it prepaid monthly fees for a few years to help launch the business, says store general manager Garth Blumenthal. The store now uses an expanded version of the tool, AutoAlert, with retail customers, too. Blumenthal says AutoAlert, whose service and mileage alert functions also identify potential buyers, helps his store sell 30 to 50 more cars a month.
Newport Lexus of Newport Beach, Calif., has used AutoAlert for about a year to identify customers with equity in their vehicles. "It's extremely effective," says Allen Moznett, the store's general manager.
Not on the screen
"Ten to twelve percent of existing clients are not on salespeople's radar but are in a position to drive off in new vehicles and keep the payments the same," says Boyd Warner, CEO of AutoAlert Inc. of Laguna Hills, Calif. AutoAlert costs $2,500 a month, with discounts for multiple rooftops. AutoAlert is used by nearly 600 dealerships, says Jeff Cotton, the company's sales director and the former Fletcher Jones Motorcars sales consultant who developed the product.
Autobahn BMW in Fort Worth, Texas, participates in BMW's Loan Loyalty program, which rolled out to U.S. BMW stores in September and targets customers with equity in their vehicles. Loan Loyalty notifies BMW dealers about their customers who are in good standing and whose vehicles' market value is more than what is owed. Dealers let those customers know which BMW vehicles they can buy for nearly the same monthly payment or in a range chosen by the dealer.
Autobahn BMW has captured an extra 4 percent in sales through this lead program, says General Manager Aaron Windes. He says he hopes to use the program with used-vehicle customers by the end of the quarter.
Shaun Bugbee, vice president of sales and marketing for BMW Group Financial Services, says that over the past four months the Loan Loyalty program has converted more than 1,700 new-car sales for retail customers. About 70 percent of converted sales are occurring between months 22 and 34 (versus a normal trade cycle of 30 to 36 months) thanks to the program, follow-up, and the fact that current used-vehicle values are at a high point, he says.
Windes says the program has provided Autobahn BMW with some good leads. The store recently got a 325i owner nearing the end of her warranty into a newer model with more equipment for virtually the same price -- and in the process sold a new vehicle to her fiance, who was also an existing customer.
Says Windes: "We try to make customers aware of the opportunities available to them."
(Source: Automotive News, 06/01/11)
Daily Sales Tip: Give Public Recognition
Salespeople, by nature, thrive on recognition. Don't make success a private event. Make a point to compliment your salesperson in front of customers, colleagues and fellow team members. Public pats on the back go a long way.
If you have a salesperson that is getting great feedback from clients, ask the customer to write a testimonial letter. This is a win-win for both parties. The first win is the feeling of importance and appreciation felt by your salesperson. The second win is for the customer. (Can you imagine how inspired this salesperson is going to be working for this client in the future?)
Source: Colleen Stanley, president of SalesLeadership, Inc.