Wednesday, August 14, 2013 | Edited by Daniel Moores
||Ford, Chevy Subcompact Gains Send Japanese Scrambling
Detroit's two biggest brands are suddenly proving themselves in a market they once wrote off to the Japanese: subcompact cars.
In a turnabout, Ford and Chevrolet now account for almost a fourth of all subcompact sales in the United States.
Small cars are the lifeblood of the Japanese industry, but lately in the entry-level subcompact part of that business Chevrolet and Ford have been making Toyota and Honda look bad.
In July, Nissan's Versa led entry-level subcompact cars with 9,007 units sold in the United States. The Ford Fiesta took second place, followed by the Chevrolet Sonic. The Honda Fit and the Toyota Yaris trailed. The top-selling subcompact vehicle, the Kia Soul, is part of a different competitive set, with other sporty, nonentry crossovers such as the Nissan Juke and Scion xB.
In response, Japanese automakers plan to bring out a new generation of North America-made small cars selling at lower prices. Competition will be intense, observers say, because the subcompact segment is unlikely to see much growth in market share.
"The domestics are getting really, really good at building small vehicles," acknowledges Fred Diaz, U.S. sales and marketing head for Nissan Division, whose Versa still reigns as king of the entry-level segment.
"Many years ago, the domestic OEMs couldn't imagine that the Asian imports would be able to come in and be as strong as they were. We don't want to make the same mistake now and turn a blind eye to the domestics."
The success is sweet to Ford Motor Co. and General Motors. But to observers such as Tom Libby, head of North American forecasting for R. L. Polk & Co., it is astonishing.
"To see a GM brand outselling Toyota and Honda in a small-car segment is a little startling," says Libby, who has been tracking market trends for 35 years. "That's not something that's happened before.
"In fact," he adds, "it made me look closer at the sales numbers for the Toyota Yaris. They're so low by comparison that I thought it was a typo."
Through July, Chevy sold 50,960 Sonics -- nearly four times the volume for the Yaris.
Up from zero
One decade ago, Ford and Chevy's combined sales of subcompacts in the U.S. market equaled zero. Neither bothered with the segment.
The mood of the U.S. market then was decidedly SUV and pickup -- in either a large or an extra large. And Ford and GM had that covered. Ford did well with the previous generation of the Fiesta in Europe but chose not to market it in the United States. And GM's big-spending push into small cars -- the Saturn brand -- was running out of steam.
Subcompacts -- and even some compacts -- were widely dismissed as econoboxes.
"It's a segment that Ford didn't do well in until the launch of the current Fiesta in 2009," acknowledges Erich Merkle, Ford's chief sales analyst. "Subcompacts are a small part of total industry sales, but we decided that it was a very important part of it that we needed to be in. You're getting that first-time buyer who will come back and buy other products from you."
Merkle reports that 70 percent of Fiesta buyers are loyal to the brand when they make their next purchase. That frequently involves a step up to a more expensive and larger Ford vehicle, such as the compact Focus or Escape crossover.
The Fiesta is even helping Ford crack the import-dominated California market, Merkle says. That is something the domestic industry spent the past decade bemoaning that it was unable to do.
Small-car success and California go hand in hand, Merkle says.
"If you're going to be successful in small cars, you're going to have to go through the California market," he says.
In 2009, Ford held a meager 2.8 percent share of California's combined market for the subcompact and compact segments. Thanks to the Fiesta, Ford now holds 8 percent of it, he says.
The cars got better, says Jeff Schuster, senior vice president of Detroit forecasting firm LMC Automotive.
"Small cars are no longer econoboxes," he says. "They have good styling and good technology. Things have changed. Ford and GM have proved that they now know how to build these cars and make money at it."
But even as the two Detroit rivals are toasting their mutual success, competitive challenges are taking shape.
Honda and Toyota are both taking steps to correct their lackluster performance in subcompacts. So is the segment leader, Nissan, says Christopher Hopson, manager of North American sales forecasts at IHS Automotive.
American Honda Motor Co. has been relying on a Fit that is imported from Japan and burdened for the past few years by abnormally strong yen values. The Fit has a base price of $16,215, including shipping, compared with $14,795 for the Fiesta and $14,995 for the Sonic. But next year, Honda Motor Co. will open a factory in Mexico that will supply U.S. retailers, with a capacity of 200,000 cars a year. That will help make Honda more competitive in pricing and equipping the Fit, Hopson says.
So far this year, Honda has sold 30,588 Fits in the United States, compared with the 50,960 Sonics and 45,831 Fiestas. The Versa leads the segment with 72,768 units sold.
Toyota Motor Sales U.S.A. has faced the same challenge with the Japan-built Yaris, which has a base price of $15,225, including shipping. But starting next year, Toyota Motor Corp. will try shipping the subcompact to U.S. dealers from a factory in France.
Mazda Motor Corp. also hopes that a change in factory sourcing will make its subcompact Mazda2 more competitive against Detroit. Mazda will open a plant in Salamanca, Mexico, next March to supply small cars to U.S. dealers and other markets.
That venture has since attracted Toyota. As if to acknowledge that its plan to get the Yaris from France will not go far enough, Toyota revealed late last year that it, too, will obtain a Mexico-built subcompact from Mazda's plant, based on the Mazda2 and arriving in 2015.
At the same time, Nissan is making a play to widen its lead in the subcompact segment by turning its one Versa nameplate into two.
The Versa has been helped in leading the segment by a low price -- it starts at just $12,780, including shipping. This summer, Nissan dealers have begun receiving the newly designed Versa Note hatchback, priced $2,000 higher than the sedan. In the past, the Versa hatchback and sedan were largely marketed as different flavors of the same car.
With the introduction of the Note, Nissan hopes to attract two different subcompact customers -- one who is buying an entry-level sedan for economic reasons and another who is buying a sporty small hatchback for lifestyle reasons.
But Ford is on the same wavelength. For 2014, Ford will begin offering a 1.6-liter engine Fiesta, a 1.0-liter Fiesta with EcoBoost engine technology for fuel-efficiency-minded shoppers and a Fiesta ST for performance-leaning consumers.
'Segment is flat'
But despite such competitive zeal, it is not certain how many more small-car sales will result.
Larry Dominique, president of ALG, the vehicle value-forecasting service, believes the enthusiasm for small-car sales is a bit overstated. ALG notes that residual values for subcompacts will rise. But that is a reflection of them being better products than they were a few years ago and because the demand for used subcompacts is, as a result, now dependable, Dominique says. It is not because ALG believes the segment will grow.
"The subcompact segment as a share of total sales has been flat for 10 years," he says. "And yet it has increased from seven models to 10, by our count. The newer models are doing well -- and that includes the Fiesta and the Sonic. But the new models are simply taking sales away from older ones. The segment isn't really gaining share."
ALG's forecast is that the subcompact class will barely grow over the next few years -- from about 4 percent of total sales today to around just 5 percent in 2016.
Equally challenging is that subcompacts are in danger of losing their ability to turn consumers' heads with fuel economy results. As Dominique explains, all segments are delivering head-turning gains in fuel efficiency.
"The Honda Accord, the Nissan Pathfinder, even big pickups -- consumers are seeing improved fuel economy all over the industry," he says. "There's really only 1 or 2 miles per gallon difference between a subcompact and the new compacts. So maybe I'm going to think twice now about giving up the roominess of one car to move down to a subcompact."
But that doesn't mean the newly ordered subcompact segment will lose share, LMC's Schuster says.
"There are too many reasons why people are looking at small cars now," he says. "Gas price volatility, better products, more choices, the lingering memory of the financial crisis in many consumers' minds. Subcompacts are here to stay."
Does that necessarily mean that the two Detroit giants will expand their newfound position there -- or even hang on to the success they're seeing?
"We expect to see some ebbs and flows in market share within the segment," Schuster says. "Chevy and Ford aren't going to let go of a segment where they're doing well now.
"But how well they do in the next few years will come down to who has the newest and best product. And their competitors are all coming out with new models. We'll have to see how much effort they put into the next-generation Fiesta and the next-generation Sonic."
(Source: Automotive News, 08/12/13)
||Study Finds Boomers to be the New-Car Generation
Last year, Dave Rodham bought two Ford Mustangs -- a red one because it looked cool and then a white one with a big V-8 engine because it sounded cool. For Rodham, 63 and retired, those were his 50th and 51st cars.
"I have to have a new car every year-and-a-half to two years," said Rodham, of Virginia Beach, Va., who said he pays cash for his cars. "After I retired 10 years ago, I didn't have anything else to do, so I went out and bought new cars."
For generations, car buying declined as consumers entered their golden years. Now, boomers are refusing to follow their parents' lead and go quietly into the car-buying night.
The 55-to-64-year-old age group, the oldest of the boomers, has become the cohort most likely to buy a new car, according to a new study by the University of Michigan's Transportation Research Institute. Graying boomers replaced the 35-to-44 year old age group, who were most likely to buy four years ago.
The findings show there are plenty of miles left in boomers' automotive passions and pocketbooks. They also suggest the billions the auto industry spends to try to woo the elusive Generation Y, the children of the boomers, would generate a higher return on investment if targeted at older drivers.
"You shouldn't be chasing the younger people; you should be looking at the older people," Michael Sivak, author of the study, said in an interview. "Baby boomers are trying to extend their youth as long as they can, both in terms of taking care of their bodies and in their expenditures."
And the recession is extending the working years and peak earnings period of the 76 million Americans who were born from 1946 through 1964 in a post-World War II birth boom.
"People's nest eggs were decreased, including their retirement portfolios, by the recession," said Lacey Plache, chief economist for auto researcher Edmunds.com. "We can expect these people to be in the work force longer and, as a result, buying cars longer."
There's also a strong psychological reason driving boomers back to the car dealer's lot year after year: Their cars define them.
"The car was a phenomenon of the 20th Century," said John Wolkonowicz, a Boston-based automotive historian and a former Ford Motor Co. product planner.
"For people who grew up and lived in the 20th century, the car was freedom, it was status, it was an extension of you, a visible expression of you and your personality. A 20-year-old doesn't see the car the same way," Wolkonowicz said.
Indeed, young people don't seem that interested in driving. Just 79 percent of people between 20 and 24 had a driver's license in 2011, compared with 92 percent in 1983, according to the Michigan study.
Conversely, the oldest boomers are trooping down to the Department of Motor Vehicles in growing numbers to remain licensed to drive. Almost 93 percent of those age 60 to 64 had a driver's license in 2011, up from 84 percent in 1983.
That helps explain why consumers age 55 to 64 had the highest rate of vehicle purchases in 2011, while the youngest age groups had the lowest rate. Even consumers age 75 and above bought cars at a higher rate than 25-to-34-year-olds and 18-to-24-year-olds, the Michigan study found.
"I have a son who lives in San Francisco; when I get a new car and I tell him what I got, he couldn't care less," Sivak said. "To him, it's a means of getting from A to B. He goes into great lengths about taking a BART or bus, even though it takes him an hour longer. He does have a car, but uses it very rarely."
Automakers have spent billions to come up with youth vehicles that end up selling better to boomers. A decade ago, Honda Motor Co. fielded the boxy Element sport-utility vehicle with clamshell doors and rubber floors that could be hosed out by on-the-go young people. Instead, Honda's boomer loyalists bought the car until it was discontinued in 2011.
"One of the dirty little secrets of the auto industry is all these cars are positioned in advertising and public relations as something a 25-year-old will buy," said John Morel, a market researcher for Honda. "But your propensity to buy a car at 25 is roughly a quarter of what it is at age 65. By definition, very few cars sell in high volume to 20-somethings."
General Motors Co., Ford and Chrysler Group LLC have had a troubled history with boomers, who migrated to Japanese and German models after being let down by poor quality from Detroit. Now that trend is turning as the revived U.S. automakers field some of their best cars in a generation, such as GM's Chevrolet Impala sedan and Ford's Fusion family car.
This year, Ford has sold 23 percent of its models to 55- to 64-year-olds, outpacing the total auto industry, which sold 22.2 percent of its vehicles to that group, according to Amy Marentic, Ford marketing manager, who cited data from researcher R.L. Polk & Co.
Ford's Escape small SUV has become a boomer magnet since a redesign last year made it more carlike and less rugged-looking, Marentic said.
The average age of Escape buyers this year is 52, up from 51 last year. And 45 percent of the Escape boomer buyers opt for the fully loaded Titanium package, starting at $29,100.
Automakers are rewriting the playbook on marketing to senior citizens. No longer will retirees buy the big, boulevard cruiser and drive it into the grave.
"Boomers have done everything different than previous generations, so why would we expect their retirement to be any different?" said Susan Pacheco, a Ford generational marketing executive.
"Their automotive needs are what we base our product strategy around. If you don't market to them, it would be a very big mistake," Pacheco said.
Rodham, who retired after a military career, is already plotting his next purchase. He's thinking of trading in the 420-horsepower Mustang GT for a $50,000 Ford F-150 pickup.
"I'm 63 and I can't handle 420 horsepower," Rodham said. "You have to be very careful not to get a speeding ticket with that car and I just cleared up all the points on my record."
(Source: The Detroit News, 08/10/13)
||Automakers Refuse to Give Up on Millennials Who Don't Buy
Young people are buying cars at a slower rate than their parents, restrained by mounting student loan debt, the rising cost of driving and an increasing reliance on biking and public transportation.
But car companies continue to chase them, banking on the hope that today's car-shirkers will be tomorrow's car-buyers.
They are trying to attract the 18-to-34-year-old millennial generation through a blend of social media campaigns, video game placements and peer-to-peer advertising. It's the 21st century equivalent of putting a Hot Wheels car into a box of Frosted Flakes.
"This audience is their future," said Michelle Krebs, a senior analyst at Edmunds.com. "It's absolutely critical that automakers try to get this market now."
Nissan Motor Co. has sponsored virtual versions of its all-electric Leaf in the Sim City video games. The digital inhabitants get higher "happiness" levels when players add a Leaf or a charging station to the cities, said Vinay Shahani, Nissan's U.S. director of marketing communications.
The goal is to put positive images of the brand in young consumers' minds when they are in their teens and 20s so they gravitate toward Nissan models when they get into the auto market in their 30s, Shahani said.
"It's about promoting a lifetime customer progression in our portfolio," Shahani said.
For automakers, the marketing expense is a down payment.
"It may be a long-term endeavor to appeal to younger drivers because a lot can't afford new vehicles now, but they will a few years down the road," said Ed Kim, an industry analyst at AutoPacific Inc.
Sean Kennedy, a recent graduate of Western Michigan University, turned down his mother's offer of her old car when she upgraded to a newer model a few years ago. Biking has served as a more affordable and sustainable commuting option.
"I was thinking about starting to save up for a car, but I thought I probably won't have enough money for a car for another three or four years," said Kennedy, 24. "Once my other student loans kick in, I won't be able to afford car insurance, gas."
Scion, Toyota Motor Corp.'s youth-centric brand, has employed promotional tactics including sponsoring rock concerts and entrepreneurism think tanks. The median age of drivers in Scion's lineup is 37, according to company data.
Millennials have practical car-buying concerns -- getting a good value, having a car small enough to navigate urban areas and making sure it hooks up with the latest gadgets, said Liz Elser, brand manager for Ford Motor Co.'s Fiesta, at a media event in June. They generally prefer to hear about those features from friends and followers than from automakers, she said.
Millennials account for 25 percent of Fiesta's buyers, Elser said. Twice, when Ford has released a new version of the car, a group of 100 young adults has earned the chance to drive one of the cars for eight months as "agents" of the Fiesta Movement campaign. They upload pictures, blog items and Twitter posts, as well as make appearances at high-profile events, including the X Games and productions of "American Idol."
Chevrolet's share of buyers under age 25 increased 1.5 percentage points from 2011 to 2012, led by gains among the brand's compact Cruze, Sonic and Spark, said Cristi Vazquez, a Chevrolet communications manager.
The company has targeted the small cars to millennials through YouTube campaigns and promotions with the Billboard Music Awards and with skateboarder Rob Dyrdek.
Student-loan debt among Americans under 30 nearly doubled to $322 billion in 2012 from $162 billion in 2005, according to the Federal Reserve Bank of New York. And the average cost of driving increased 18 percent during the past decade, according to AAA, the motorists' club.
Michael Sivak, a research professor at the University of Michigan Transportation Research Institute, has found a shift in the peak age of vehicle buyers -- from 35-to-44 in 2007 to 55-to-64 in 2011. That trend could be here to stay and spending marketing dollars on millennials may be misdirected, he said.
Krebs, of Santa Monica, Calif.-based Edmunds.com, disagrees, saying that early evidence shows that the rate of millennial car purchases may be picking up.
The 18-34 age group fell from 14.5 percent of new-car registrations in 2008 to 10.6 percent in 2011 before rebounding to 12.4 percent last year, according to R.L. Polk & Co. The gain last year outpaced all other age groups, and millennial buyers are continuing to come back this year, Krebs said.
Trenton South, 28, of Cincinnati, bought a metallic gray 2012 Chevrolet Sonic Hatchback last spring. The car won him over as he paged through online auto forums and watched Fast Lane Daily car reviews before breakfast. Its flashy online advertising campaign first caught his eye.
"It had a huge ad push -- bungee jumping, flying out of a plane," South said. The car's fuel economy, six-speed manual transmission and American make "checked everything in the box," beating out his two other contenders, the Mini Cooper S and Subaru WRX.
(Source: Bloomberg, 08/09/13)
Daily Sales Tip: Trust Builders
Strong customer relationships are usually built by applying behaviors called "trust builders." Here are five critical ones:
1. Truth. You give fair and balanced presentations and clear statements of benefits. Your product or service does everything you promise. The proof you use to support your words is credible. Subsequent events prove your statements to be true.
2. Dependability. Your actions fulfill your promises and fit a pattern of dependable actions you have established. You never promise what you can't deliver.
3. Competence. You display technical command of products and applications. You have the skill, knowledge, time and resources to do what you promise and what the buyer wants. Your words and actions are consistent with a professional image.
4. Intent. You place the customer's interests on a par with your own, and make a commitment to be there, to be responsive, to always act in the customer's best interests. You won't push a product the customer doesn't need.
5. Likeability. Prospects want to deal with salespeople they enjoy. They like salespeople who are courteous and polite and make efficient use of their time. You and the prospect may share and talk about areas of commonality, even extending to non-business topics.
Source: Adapted from Built on Values, by Ann Rhoades, president of People Ink