Wednesday, September 14, 2011 | Edited by Daniel Moores
||Auto Price War Looms as Japanese Restock Showrooms
Here comes an auto-incentive war, says Kelley Blue Book's kbb.com.
As Japanese automakers refill their inventory pipelines, they will be offering big incentives to get shoppers back into their showrooms and keep them away from a basketful of credible rivals.
That will trigger incentives by rivals hoping to hang on to gains they've made since the March earthquake and tsunami in Japan wrecked production of cars and components.
Also figuring into the kbb.com forecast: New models from the Japanese brands. Among them: An updated Toyota Camry that will offer a lower-price, higher-power, better-mileage, gas-electric hybrid version; a freshened Honda CR-V, which is the second-best-selling SUV in America, behind only the Ford Escape, according to tallymasters at Autodata.
KBB.com "anticipates strong incentives late in the year in the form of cash and attractive lease offerings. As the Japanese replenish inventory and begin to throw cash on the hood, expect to see the domestics follow suit, setting off an incentive battle."
Bad news for automakers' bottom lines. Great news for auto buyers. Here's more from the kbb.com report:
"Prior to the earthquake, Japanese brands were consistently capturing close to 40% of all United States sales, but since April they have seen their monthly share of sales dwindle to nearly 30%. As Japanese production facilities return to full capacity in the near future, expect to see strong incentive support from these manufacturers as they aggressively try to recapture lost market share.
"While (South Korean brands) Hyundai and Kia sales are strong, neither currently has high-enough inventory levels to support incentive programs big enough to compete with the Japanese brands. Neither of the Korean brands have the production capacity to satisfy current demand for their products as evidenced by their ultra-lean 19-day supply of vehicles currently available to consumers.
"Under those conditions, consumers in the market for a new vehicle will likely find plenty of attractive deals in the latter part of the fourth quarter."
"While the earthquake in Japan halted sales recovery earlier this year, the anticipated push by the Japanese to recapture market share will likely help sales later this year," said Alec Gutierrez, manager of vehicle valuation for Kelley Blue Book. "Since May, Japanese brands have given up considerable market share to both domestic and Korean manufacturers."
(Source: USA Today, 09/12/11)
||Making Brands Relevant
Top Marketers Move Beyond Heritage
Chevrolet and Volkswagen are each blessed with a rich brand heritage, but making that tradition fresh and forward looking -- well, that's a challenge for their marketing chiefs.
At Volkswagen of America, for instance, new marketing boss Tim Mahoney plans to use the phrase "That's the power of German engineering" in advertising.
That pitch sounds familiar, so you might be steeling yourself for another round of VW commercials that tout advanced technology and driving performance.
But Mahoney says he can move beyond "cold sheet metal" and tell emotional stories about, say, the performance of VW's vehicles, environmental topics or VW's new plant in Chattanooga, Tenn.
"It's about the human feeling that people have" for the brand, he says. Mahoney joined VW in May from Subaru of America Inc.
Recently, Mahoney and six other leading auto marketers shared their ideas with reporters and editors of Automotive News about brand identity, product advertising, social media and other topics.
At Chevrolet, brand strategists will move beyond the current heritage campaign, "Chevy Runs Deep," with advertising that stresses the brand's technology and products, such as the Volt plug-in hybrid.
"We have a new (Volt) campaign coming out soon that will explain the car well, which people say we haven't done," says Jeff Goodby, co-chairman of Goodby, Silverstein & Partners. "It will bring to the forefront what Chevy is doing, as the bellwether of what the brand can be. But a lot of the power of this car comes from knowing what it does, not from zingy commercials."
Jim Farley, Ford Motor Co.'s marketing chief, is devising new ideas to sell a luxury brand, Lincoln, as the company strives to improve the brand's vehicles.
He plans marketing that emphasizes "elegance and design excellence and excitement of driving."
Another upscale brand, Buick, needs a fresh brand identity. Joel Ewanick, General Motors' global marketing chief, says Cadillac and Buick will play to different luxury customers.
Cadillac is "very distinctive, high-powered, has lots of energy," he said. Buick, on the other hand, is "this very approachable, very human kind of luxury, understated luxury."
Marketing today is not just a matter of having the right message. That message also needs to be delivered in new ways, reaching consumers where they gather in ways that are appropriate. The marketing chiefs are using social media, such as Facebook and Twitter, as a tool to engage consumers in ways that are more personal than traditional advertising.
For instance, Toyota Motor Sales U.S.A. Inc. asked consumers to vote for a charity that most deserves a free car.
"There are ways to get them engaged in products and the brand so that it's genuine and they want to participate, as opposed to forcing it on people," says Bill Fay, Toyota's group vice president of marketing.
At Ford, Farley likes to start social media campaigns early, well before the car goes on sale. And his spending on social media and other digital marketing is growing.
"Now social media and our investments are right up there with search and other digital banner advertising," he says.
Some of Ford Motor's ideas on using social media arose from what Satish Korde, CEO of Team Detroit, Ford's ad agency, saw in China. Because state TV is managed, bloggers in China are very important, he says.
Farley also is trying to make greater use of smartphones. But finesse is required, he says, because the smartphone is a "personal device," on which advertising can be annoying.
"You have to add value to people's life if you're going to market on there," Farley says. "People want something that's very practical such as "I'm in your showroom. I have a smartphone. I don't want to go home and watch a video on how the inflatable seat belt airbag on the Explorer works. I want to find out right now. I have a smart device, so make it easy for me.'"
With social media, marketers should be willing to relinquish some control of the message. Doing so, they say, can boost the credibility of the message.
For example, for the 2011 Buick Regal, consumer comments about the car -- good, bad and otherwise -- were compiled and posted for all to see "in a very open, transparent and honest way," says Rich Stoddart, president of Leo Burnett North America, which handles Buick and GMC.
"It became a way to get the word out about what was happening and let the consumer control it. We got a whole lot of positive response to that in terms of buzz."
Toyota's Fay believes social media can reach young people, who are watching less TV. "We're looking for where they are spending their entertainment time," he says. "Largely, that's on the Internet, through different gaming and Sci-Fi and comics."
At VW, Mahoney will use social media for the Beetle. For the U.S.-made Passat, though, he plans a significant increase in TV advertising.
He says: "If you don't see our advertising this fall, you must be out of the country."
(Source: Automotive News, 09/12/11)
||Three Years After Crash, Pipe for Used Cars Slams Shut
When Lehman Brothers collapsed three years ago this week, new-car sales did, too.
So, starting this week, the shortage of late-model used cars -- already causing used-vehicle prices to soar -- will worsen dramatically because so few three-year lease cars are returning.
Only 90,000 leased BMWs are returning this year, for example, compared with 146,000 in 2008.
Dealers are having trouble getting enough used cars. And the short supply means used-car prices are bumping up against some new-car prices. For example, kbb.com lists a used 2008 Chevrolet Malibu LTZ with 23,000 miles at $19,950 -- and a new 2012 Hyundai Sonata GLS at $22,450.
And things will stay that way because three years of far-below-trend new-car sales mean tight supplies of used cars until 2014 or later if the economy doesn't pick up. Jonathan Banks, an analyst at NADA Guide, said returns of three-year leases will be especially low starting in the fourth quarter.
The short used-vehicle supply is a problem for dealers because they depend more than ever on used-vehicle volume to make up for low new-vehicle sales.
Compounding the problem: The high values of cars coming off lease now mean more customers will buy their vehicles at the end of the lease term because the purchase price is significantly lower than that of a comparable replacement.
Keeping lease cars
At Mercedes-Benz of South Orlando in Orlando, dealer Dorian Boyland says owners are buying 30 percent of their Mercedes vehicles at the end of leases -- a higher percentage than in the past.
Boyland said he keeps most trade-ins and lease returns for his used lot, but he must also buy at auctions to stock his certified used-vehicle program.
"You cannot live on your lease returns...to be in the certified pre-owned business," says Boyland, owner of the 13-store Boyland Auto Group. "There is not enough off-lease inventory to do that."
Factories once subsidized low-cost lease deals mainly to boost new-vehicle volume. Now they are setting leasing strategies with an eye on eventually feeding dealers and the automakers' own certified used-vehicle programs, said Eric Lyman, director of residual value solutions for ALG, which forecasts future used-vehicle prices and supplies.
"Leasing can be a sales channel for used-vehicle stock that a manufacturer controls," he said.
That has increased significance since automakers ceded control of rental-car returns. Back when automakers, especially the Detroit 3, sold hundreds of thousands of "program cars" to rental companies and bought them back at a loss, dealers got lots of same-make used cars. Today, rental fleets buy fewer vehicles, keep them longer and take the risk of reselling them. So automakers can't funnel them to their dealers.
Shaun Bugbee, vice president of sales and marketing for BMW Group Financial Services, said a strong supply of late-model used vehicles for BMW dealers is key to setting a leasing strategy.
"It's extremely important that our dealers have a good supply of used vehicles," he said.
Limited availability is forcing dealers to sell older, high-mileage vehicles. Publicly held Penske Automotive Group is among dealership groups now selling vehicles that they used to sell at wholesale.
For example, penskecars.com recently listed a 1995 Nissan Pathfinder with 197,292 miles for $1,588 and a 2003 Ford Taurus with 164,945 miles for $2,988.
NADA Guide says used-vehicle supplies will fall 5 percent this year and another 4 percent in 2012. ALG says supplies will hit rock bottom in 2012 and 2013 and won't return to 2008 levels until 2017.
Counting only 3-year-old used, kbb.com sees the bottom 12 to 18 months out.
"We won't bottom out until late 2013," said Greg Russell, national risk manager for Toyota Financial Services, counting up to 5-year-old vehicles. "It may be a decade until we return to the supply of used vehicles we once had."
Less auction action
With dealers keeping almost every used vehicle traded-in, auctions are being hit hard. And dealers also are more willing to buy used vehicles online and outside of the traditional auction channel.
Auction operators are consolidating sites and buying competitors. In June, privately held Manheim, the nation's largest auto auction company, closed half a dozen auctions. It now has 73 North American auction sites.
In August, Jim Hallett, CEO of KAR Auction Services Inc., parent company of No. 2 auction house ADESA Inc., said forecasting future conditions is difficult. ADESA recently agreed to buy online auction competitor Openlane Inc.
In the second quarter, ADESA's vehicle volume fell 14 percent. Nationally, auction volume fell 11 percent in the second quarter, the National Auto Auction Association said.
Larry Dixon of NADA Guide said: "We're very bullish on the used-car market," although he doesn't see prices continuing to rise.
"On the flip side, we don't expect prices to drop off dramatically either," he said.
ALG's Lyman forecasts prices for used vehicles will peak in January and then slowly ease.
"As a recovery starts, the first buyers to come back are focused on used cars, the rational, safe buy," he said. "But as the recovery gets stronger, buyers shift their attention to new cars."
Projected residuals on 3-year-old off-lease vehicles at mainstream brands are 48 percent of retail value so far this year, up from 45 percent in the first eight months of 2008, Lyman said.
But the residual forecasts set by ALG and others are not high enough to suit some carmakers. Eric Ibara, director of residual value consulting at Kelley Blue Book's kbb.com, expects captive finance companies to increase their projected residual values on leased vehicles, thus cutting the payments for consumers.
Essentially, automakers would be betting that those cars will be worth more three years from now than kbb.com thinks they will.
Said Ibara: "As long as they reserve for the difference between their enhanced residual and the more realistic residual, they should be OK."
(Source: Automotive News, 09/12/11)
Daily Sales Tip: Uncovering the REAL Reason
As a business owner or sales manager, we constantly hear the same responses from our sales team when they fail to close a deal. Here are some common examples: "The competition bought the business;" "Everything is on hold right now;" "Budgets are frozen;" or the number one response, "Our price was too high."
What's the real reason they turned us down? We'll never really know, unless we ask the right, and sometimes tough, questions up front. The more accurately you identify the issues and the prospect's concerns, the easier it is to qualify the opportunity.
Identifying our prospect's resistance to buy also requires listening between the lines. Not everything said in conversation represents the whole story. Your sales team needs to read body language, eye contact and voice inflection throughout the sales process to identify where their prospect is raising an objection -- even when they don't say it out loud. For example, did they cringe when the salesperson mentioned price, delivery schedule or quantity. When that happened, did the salesperson seize the opportunity to ask direct questions on that issue?
By asking the right questions and "reading" the prospect, salespeople may not always get a "Yes" answer, but at least they'll find out why the prospect said "No' or "Not right now."
Source: Sales consultant Steve Hackett