Wednesday, March 14, 2012 | Edited by Daniel Moores
||This Time, Pricey Gas May Not Spur Small-Car Sales
Americans Are Used to Seasonal Shifts
It happens nearly every year: Gasoline prices rise in the spring and sales of smaller cars spike through the summer. Pundits declare that car-buying habits are changed for good.
Then gasoline prices fall, and consumers go back to buying full-sized SUVs and cars with larger engines.
Some industry trackers believe 2012 will be different because this time Americans will realize that cheap gasoline isn't coming back. But increasingly automakers seem to doubt that a permanent change in consumer behavior will ever occur.
As a result, they are focusing more on boosting the fuel efficiency of the entire vehicle lineup and not just adding small cars.
"I don't see this reshaping the buying public," said Bill Reinert, Toyota national manager of alternative fuel vehicles. "We've been through these cycles for two decades, but it's never really taken. I don't see this as a chance for a sales boom for the (Chevrolet) Volt and (Nissan) Leaf."
Shopping behavior tracked by Compete Automotive in Boston shows that sudden spikes in gasoline prices lead to a sharp rise in demand for small cars. More gradual increases in the prices have less effect, "but at some point, even a gradual creep to insane prices is likely to drive behaviors," said Lincoln Merrihew, Compete's managing director.
Reinert says that the sales-weighted fuel economy of new Toyotas has gradually increased over the past several years, basically following the trend of gasoline prices. But sudden purchase spikes in fuel-efficient cars have been repeatedly followed by troughs once gasoline prices fall again. Reinert says that charting Toyota Prius sales in relation to gas prices bears this out.
Retail sales of the redesigned Ford Focus compact were up 123 percent in February in California, a market that bore the brunt of suddenly higher gasoline prices. But will that sales rate hold should gasoline prices decline?
"We saw increases in small cars and fuel-efficient vehicles move in tandem with the price of gas," said Erich Merkle, Ford's U.S. sales analyst. "Volatility shifts buyer behavior."
A lot depends on how much and how quickly gas prices recede in the fall.
"It's a seasonal variation, and consumers are remaining a little skeptical that any price rise is going to be permanent," said Donna Miller, analyst with market researcher GfK Automotive. "We are not seeing a structural shift between the segments because consumers are conditioned to five months of gas price increases, followed by seven months of decreases."
Compact and subcompact cars represented 24 percent of the light-vehicle market in February, up from 19 percent last year, Merkle said. That continues a long-term trend toward smaller vehicles, up from 13 percent in 2004, with buyers cascading from larger cars to vehicles with smaller footprints or staying with the same nameplate but buying the smaller engine offering.
Eric Fedewa, director of global powertrain and components for IHS Automotive, says there are two tipping points.
When gasoline purchases reach 3 to 3.5 percent of consumer disposable income, consumers begin reducing their miles driven and choose the smaller engine in the car they want. But when gas surpasses 3.5 percent of disposable income, consumers choose smaller cars, Fedewa said.
The national average for gasoline purchases was 3.27 percent of disposable income in January, and higher in some states, he said.
Some analysts say gas prices don't have the effect on the pocketbook that they once had. Oil industry consultant Peter Wells of Neftex Petroleum said that when adjusted for inflation and gains in household incomes, gasoline prices would have to be $6.20 a gallon to equal the impact they had in 1985.
These days, automakers are positioning fuel-saving technology more as a cost-of-ownership benefit. Ford is pushing its EcoBoost turbocharged engines. The best-selling model in the F-150 full-sized pickup lineup has an EcoBoost engine. Later this year, the EcoBoost will arrive in the Explorer, Edge and Escape crossovers and the Fusion sedan.
"Internal combustion engines are getting so much better that there's not much of a difference (with hybrids) any longer," Merkle said. "The next-generation hybrid has to be better from a fuel economy and pricing perspective. It's a game of leapfrog."
Thayer Chew, Honda senior manager of product planning, said Honda owners cite "value for money" as their No. 1 reason to buy -- up from 6 percent a decade ago to 20 percent today. Fuel economy as the top purchase reason routinely bounces between 4 and 8 percent, although it jumped to 12 percent during the summer 2008 gas hikes.
Given upcoming corporate average fuel economy requirements, Honda "needs to maximize the fuel efficiency of our overall fleet," Chew said. "Some buyers need to have larger vehicles for large families or for towing. People are trending toward more fuel-efficient vehicles overall."
(Source: Automotive News, 03/12/12)
||Leasing Boom? Not So Fast
Dealers looking for a big increase in leasing this year may be disappointed.
Some forecasters see a leasing boom this year and beyond. And one even suggested leases will account for 40 percent of new-vehicle deals by the end of the decade, up from 30 percent in 2007.
But new data from Experian Automotive show lease penetration for new-vehicle volume was flat in the fourth quarter last year -- down slightly, in fact, at 23.1 percent from 23.7 percent the year before -- after two years of growth. And that, the company says, is where it could stay.
"It's starting to look like this is what the market bears for leases," said Melinda Zabritski, director of automotive credit for Experian Automotive.
She isn't alone.
"There are real reasons why those who are optimistic about leasing should be optimistic, but the realities don't seem to be following those reasons," said Paul Cuevas, director of automotive finance for J.D. Power and Associates.
Cuevas cited three interrelated reasons why lease penetration seems to have topped out for now at around 20 percent of new-vehicle retail: Lenders are leery of again being burned by inflated residual values, consumers are keeping their cars longer, and low interest rates favor purchases over leases.
In addition, the downsized Detroit Big 3 have lowered their breakeven points since the recession. They're not as highly motivated to get units out the door by subventing leases as they were before restructuring.
A single quarter of lower lease penetration in the fourth quarter of 2011 doesn't make a trend. But the rate of increase in leasing has been diminishing ever since the third quarter of 2010, Power Information Network data show.
Lease penetration was 19.5 percent in the fourth quarter, down from 20.2 percent a year earlier, PIN said. Lease share of new-vehicle retail sales bottomed out at 10.3 percent in the third quarter of 2009.
Experian Automotive, using a different methodology, said lease penetration was 23.1 percent in the fourth quarter, down from 23.7 percent a year ago. For all of 2011, Experian Automotive said, the average lease penetration was 23.7 percent, up only a fraction from 23.5 percent in 2010.
Zabritski said that leasing is back to around the same level it was before the credit freeze and the recession. Maybe it's too much to expect leasing to keep growing beyond that level, she said.
"This tends to be about where it had been, going back as far as 2006, before we had all these troubles," she said.
Still, there are some reasons for optimism.
The growth in leasing has enjoyed a tailwind in the form of higher used-car prices. Used-car prices have stopped increasing like they did in the past couple of years, but they are still at a high level in historical terms.
Data from ADESA Auctions Inc. show that the average wholesale used-vehicle price at auction was $9,878 in December 2011. That was a 9.5 percent increase from December 2008 but only 0.5 percent increase from December 2010.
Higher used-car prices mean auto lenders are less likely to lose money on lease returns. The used-car shortage that's supporting used-car prices is expected to persist at least through this year.
Leasing also remains high for luxury import captives such as Mercedes-Benz Financial, at 64 percent leasing in the fourth quarter; or BMW Financial Services, at 62 percent leasing, according to Experian.
Finally, several automakers have expressed an interest in higher lease penetration. GM bought the former AmeriCredit in October 2010 in part to get closer to the industry average in leasing. The company said it is unlikely to reach industry average because it sells a high percentage of trucks, an area in which leasing is less popular.
GM reported its U.S. lease penetration was 11.1 percent in the fourth quarter, down from 12.9 percent a year ago. For all of 2011, GM's lease penetration was 13.2 percent, up from 9 percent in 2010, spokesman Jim Cain says.
According to Experian Automotive, captives for the three biggest Japanese brands had above-average lease share in the fourth quarter, with Toyota Financial Services at 30.6 percent, American Honda Finance at 40.8 percent and Nissan-Infiniti Financial Services at 45.8 percent. Those figures include their respective luxury brands.
Taking advantage of improved residual values, Hyundai Capital America, which serves both Hyundai and Kia brands, had a 53 percent lease share in the fourth quarter, according to Experian. VW Credit had a 53.7 percent lease share.
However, leasing has become pretty much the domain of the captive finance companies as banks stay away, J.D. Power's Cuevas said.
The manufacturers want "to shorten trade cycles and length of ownership," he said, adding: "Leasing definitely does that for the manufacturer. There's also a higher propensity for that customer to purchase a similar-make vehicle if they come from a lease."
Leasing is likely to grow more rapidly if and when the manufacturers pour enough incentives into it to make that happen. For the most part, that doesn't seem to be the case, Cuevas said.
He added: "A huge factor in lease vs. purchase is the lease offer itself."
Why Leasing Growth May Stall
Auto lenders are risk-averse: Lenders got badly burned on inflated residual values in the credit freeze and the recession. In 2008, the domestic captives lost billions when the bottom fell out of resale values for big pickups and SUVs coming off leases. Ford Motor Credit Co. and Ally Financial Inc. have come back in leasing to an extent, but big banks' auto finance units, such as Chase Auto Finance, have largely stayed away.
Customer demand is changing: Customers are keeping their cars longer. The average trade-in is now 6.5 years old, according to the Power Information Network. The average car on the road is close to 11 years old, according to R.L. Polk Co. Customers are less interested in 3- or 4-year leases, J.D. Power's Paul Cuevas said. Not only that, there has been a shift to smaller, more fuel-efficient cars, an area in which lease penetration historically is low, he said.
Interest rates are low: Because interest rates are low -- the prime rate is only 3.25 percent -- it's relatively cheap, and certainly less risky for lenders, to buy down the interest rate on a loan instead of taking a chance on residual values, Cuevas said.
(Source: Automotive News, 03/07/12)
||Dealerships Losing Younger Service Customers
Auto dealerships rely on their service bays for incremental revenues. Whether for repairs, upgrades or customization work, dealership service is a $78 billion market.
But a new study suggests younger consumers are favoring quick-service chains over dealership service, whose loyalists are an aging population.
Auto consultancy DMEautomotive, in its white paper, "The Changing Service Loyalty Landscape," a review of the $215 billion U.S. auto service market, says there are two "forces of graying" favoring aftermarket chains’ service profits to the detriment of new car dealerships.
First, dealership service centers are becoming "senior centers" as younger consumers favor aftermarket chains, per the report. Second, the age of the U.S. vehicle fleet is also benefiting independent stores and aftermarket chains, while taking its toll on dealerships because dealerships lose 47% of the warranty service when vehicles are three years old or older.
Only 45% of Americans polled said they are likely to visit the dealership for basic services even within the first two years of ownership, when the in-warranty dealership relationship is still strong.
And as vehicles hit 3-6 years, dealerships lose 47% of that initial business, with only 31% reporting they would use dealerships for these services. By 7 years, only 13% of customers will select dealerships for these services, per the survey, which also says independents and aftermarket stores grab significantly more "core" service business at vehicle-age three -- much earlier than many dealerships may imagine.
The study, based on a survey of 4,000 U.S. vehicle owners, says loyalists drive 62% of dealership revenues. But the study found that about half of aftermarket chains loyalists are under 34, while around half of dealer loyalists are 50 years old or more.
Dealership loyalists from the over-70 segment exiting the market would represent a $3.4 billion loss. The report also shows that dealership loyalists are more likely to be over 60 than any other loyalist group. Over a third of those most likely to be disloyal to a dealership service center are between the ages of 25 and 34.
"If dealerships don't replace their aging loyalists, and aftermarket stores are successful in retaining their loyalists as they charge towards their prime spending years, a share-of-wallet sea-change is looming that would greatly favor aftermarket stores, while eroding dealerships' lifeline service profits," said Doug Van Sach, vice president of strategy and analytics at DMEautomotive, in a statement.
(Source: Marketing Daily, 03/05/12)
Daily Sales Tip: Who Are Your Ideal Customers?
Is your sales funnel full of prospects that you are unlikely to close, or if you did win would turn out to be unprofitable?
Why not identify who your ideal customers are and focus your time and resources where you'll get the highest return. The closer a prospect is to your Ideal Customer Profile, the better the fit, the easier the sale. The further away you get from this ideal fit, the more problems are likely to occur at some point with the account. Increase your probability of success, by first identifying who to target.
Ask yourself these questions in order to create your Ideal Customer Profile.
1. Who are my most satisfied clients? The only way to target an Ideal Customer is to have a clear picture of them. Make a list of the clients that not only use your product or service, but do so with passion. These are your advocates and will also be the ones that provide you with the most referrals.
2. Are they easy to work with? The difficult prospect can become the difficult client. Make certain you have shared values and your goals are aligned. As business consultants, we look for companies that place a high value on investing in their people. It's important to our mutual success that the systems, and processes, we put in place will be supported.
3. Do they have the potential to be profitable? When I was selling radio, I called on a plastic surgeon that performed a myriad of services, but only wanted to promote blepharoplasty, eyelid surgery. This procedure, while not the most expensive in his repertoire, was the most profitable for his business. Profitably was determined by how many customers chose it, the price point of the procedure, and how many procedures he could execute in a week. The doctor had identified his Ideal Customer Profile and marketed only to that individual -- quite successfully.
4. Why do they buy from you? Ask your clients why they chose to do business with you over a competitor. Why do they continue to do business with you? What could you improve upon? Not only does this make perfect sense, your clients will be flattered to know that you care enough to ask and that you don't take their business for granted.
5. How are they similar? Is there a sector, or category, that consistently does well with your business? Look for commonalities amongst your most satisfied customers, such as need, length of sales cycle, seasonality, size and industry. Study the core client demographics of age, gender, income level, and education. Don't just look at your client base, but access those of your entire organization.
6. Who were the key stakeholders involved? Each sale is unique, but more often than not you will deal with multiple stakeholders. Not everyone who wants to do business with you will have the authority to do business with you. Study a cross-section of your accounts and note which stakeholders you dealt with most effectively, and how this influenced your closing rate. These stakeholders could be anyone from HR to the CEO.
Now take all this information and create an Ideal Customer Profile ranking these criteria in order of importance. Use this "Profile" to ask intelligent questions and qualify opportunities early on in the sales cycle, saving you time and focusing your efforts.
Source: Theresa Merrill, co-partner at marketing consulting firm Anovick Associates