Wednesday, August 3, 2011 | Edited by Daniel Moores
||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)
||Senior Customers Require Balancing Act
TrueCar.com's review of the purchasing behavior of more than 200,000 car buyers from 2009 and 2010 shows that seniors (people 65 years of age and over) choose vehicles from brands they grew up with. Topping the list of brands purchased by seniors in that period, by percentage of buyers, were Buick, Lincoln and Cadillac.
"It's sort of a good-news, bad-news scenario for automakers," says TrueCar head of industry analysis Jesse Toprak. "It's good news because of the high loyalty and admiration for the brands among these older consumers. It's bad news because, well, they won't be alive forever.
"So it's a balancing act, really. I talk to these guys and it's a challenge they live. It's something they think about every morning when they get up: how do we not alienate our loyalists while trying to bring younger buyers into the brand?"
If the relative percentages of older buyers among brands were low, it wouldn't be such a nightmare for marketers. But the numbers say it all: 57.5% of Buick owners in 2009 and 2010 were over 65, per TrueCar stats. For Lincoln, it's 47.7%. Cadillac sold 44% of its cars during that time to seniors. After that comes Chrysler at 36.1%. General Motors sees a more youthful balance with GMC, at 32.4% over-65 buyers, and Chevrolet, which is just above Porsche, at 31.2%. After Porsche (29.5%) come Lexus, Jaguar and Hyundai, a quarter of whose buyers are 65 or older.
Toprak says the key to appealing to all consumers is to have (and market) tech-forward cool vehicles that younger buyers like, and trim levels that older consumers may also respond to. "It all comes down to the product. In spite of image, you can still sell to a younger and hipper audience with the right vehicle." Case in point from some years back before Buick had begun revamping its lineup with vehicles like the Enclave: the Buick Rendezvous, introduced in 2001 and built on the same platform as the (much mocked) Pontiac Aztek had waiting lists in California, notes Toprak, who said those buyers were 40-somethings. Same drill for the Enclave.
Another pattern emerges with a quick glance at the specific models with the highest percentage of older buyers: about 90% of buyers of the Lincoln Town Car are 65 or over. Next is the Buick Lucerne full-size luxury sedan, 86.6% of whose buyers are seniors. After that comes the big Cadillac DTS, the CTS Wagon, STS large car, the Hyundai Azera full-size sedan, and Chevy's largest car, the Impala. The list also includes the Toyota Avalon full-sized sedan. The only mid-sized cars on the list are Buick LaCrosse and Lincoln MKZ, 58.9% and 53.8% of whose buyers were 65 or older in the past two years. For the most part, big cars mean older buyers.
"That's the general issue; large cars don't appeal to younger people; it's really a category problem," says Toprak, who notes that luxury brands like BMW and Mercedes-Benz have smaller vehicles in market or in the pipeline to appeal to younger buyers: BMW launched the 1-Series in 2004 and Mercedes-Benz plans a small car for the U.S., perhaps based on its Europe-market A-Class platform. These are "leapfrog" cars that a 20-something can buy and then move up from as they get older and hopefully more affluent, notes Toprak.
"It's not just image -- it's practicality, he says. "If they offer vehicles with very attractive lease payments that younger buyers with better cash flow can get into, you get a much higher chance of succeeding."
(Source: Marketing Daily, 07/29/11)
||Study Says Majority of U.S. Car Buyers Open to EV Purchase
A majority of U.S. automotive consumers would consider buying a plug-in hybrid-electric vehicle and, to a lesser extent, a full-electric vehicle next time they are in the market for a new car, according to a study by consultancy Accenture.
But would-be EV buyers cite various conditions, ranging from generous tax breaks to easy access to charging points.
Seven out of 10 respondents say they would prefer plug-in hybrid-electric vehicles to full EVs. Sixty-one percent say they may buy an alternative-fuel vehicle within the next three years.
But first they want an improved charging infrastructure. Utility companies are the top choice among respondents for charging their EVs, the study says.
Seventy-seven percent say they would prefer buying charging services from such companies. Sixty-eight percent cite traditional service stations as their choice, while 65% named retailers.
Accordingly, the study recommends that energy utilities work with automakers and dealers to monitor local energy demand for alternative vehicles, with an eye toward enhancing charging infrastructures.
Such an alliance would benefit both the energy and automotive sectors, says James A. Robbins, Accenture's North American Automotive and Industrial Equipment Industry Lead.
"One of the key challenges facing the auto industry today is building consumer confidence in the electric-vehicle experience," he says.
"This report suggests that utilities can play a key role in elevating that confidence, while helping to spur more EV sales."
High gasoline prices are making EVs attractive potential purchases, Robbins says.
"But clearly the other part of the EV equation is the creation of a consistent, readily available charging infrastructure. Working together, the utilities and auto companies may be able to make EVs a truly viable alternative in the U.S. market."
The study cites other factors affecting potential EV purchases:
(Source: WardsAuto.com, 07/27/11)
- Seventy-two percent of U.S. respondents say having a home charging point is important.
- Beyond price, the top-three factors for considering a switch to an EV are access to tax breaks, priority lanes and free parking. Eighty-five percent cite no car tax as the key incentive.
- Eighty-five percent say having their vehicle charged with electricity generated from renewable energies, such as hydro, wind or solar power would spur their purchasing an EV.
- Seventy-four percent of respondents would prefer to buy, rather than lease, their alternative-fuel vehicle.
Daily Sales Tip: Making a List
From a customer's standpoint, how does your service stack up compared with that of competing sales reps?
You could invite customers outright to make the comparison. Or better still, work up an item-by-item checklist for buyers to fill out. It can be revealing on the one hand and show customers you care on the other -- plus it can suggest areas for potential improvement.
Source: Business author Ray Dreyfack