Friday, 15 August 2008

Auto Manufacturers Cutting Back on Lease Deals

Leasing deals on new vehicles are quickly becoming extinct. As we reported before, in 2008 the percentage of new vehicle sales that were lease contracts rose to 22%, from 19.3% in 2007. Dealers originally pushed leasing deals, in the face of declining sales, to get vehicles out of the lots and into the hands of drivers. Well, times they are a changing. Due to record high interest rates and Detroit’s current financial situation, leasing contracts can be seen less and less. Consumers are also faced with the new decision of whether a leasing contract is any longer a smart financial decision. Although leasing contracts previously allowed drivers to drive vehicles they couldn’t afford otherwise, now leasing contracts don’t carry the same benefits.

Chrysler has recently announced they were no longer writing lease deals following the first of August. Following close behind, GM and Ford have announced they too would cut back on new lease deals for new vehicles. Auto financing companies are rapidly losing money because of the decreasing residual value of SUV’s and large trucks. Ford saw the residual value of their SUV’s fall 25% last month, and this declining value has been the cause of over $8 billion in financing losses. The response from manufacturers has been to eradicate or reduce their leasing options. Chrysler dealerships can still lease their vehicles, however they will need a private company to deal with the financing.

New England and the Great Lakes are expected to be affected the worst, where leasing percentages are 50% and 70% respectively. Although this is bad news for habitual leasers, repair and service shops are expected to see increased profit because owners are now locked into their purchased vehicle, instead of a monthly payment and a brand new car every few years. Used car sales are also expected to rise, because consumers will choose to buy used, at a reasonable price, and will be able to keep their car at the end of the deal. Leasing may not disappear completely, but the deals will be harder to spot and much more limited.

Posted by industry at 9:20 AM in Auto dealer headlines
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Monday, 31 March 2008

Mercedes opens high performance AMG retail centers, pushing new C63 model

With the introduction of the 451-horsepower C63 AMG sedan next month, Mercedes-Benz is poised a capture high performance seeking drivers formerly captivated by BMW’s M3 and Audi’s S4 lineups of vehicles. Mercedes will open 27 dedicated AMG showrooms at existing dealerships in top selling markets, in an effort to spread the word about the AMG nameplate.

Dealers chosen to include AMG performance centers will receive special edition AMG models, as well as larger allotments of the entire lineup. These dealers will not only up marketing spend, but also send their staff to Germany for special training.

Source: Automotive News [Subscription required]
Image: Mercedes-Benz [2008 E63 AMG]

Posted by industry at 1:47 PM in Auto dealer headlines
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Tuesday, 18 March 2008

Low payment, short duration car payment appeal pushing lease rates up

The percentage of new car buyers choosing the lease option continues to grow. According to an Automotive News report, 19.3 percent of new vehicle sales in 2007 were lease contracts, up from 14.3 percent just four years ago. And in 2008, the rate has climbed to nearly 22 percent. It’s not just consumers who are seeking low payments and short-term commitments; OEMs and dealers are pushing these deals in the face of an industry wide decline in sales.

Automotive News notes that many “upside-down” owners – those who owe more money on a car than the vehicle is worth outright – are turning to leasing as an attractive way flip right side up. Take an affordable lease – the $199/month deal on a 2008 Honda Civic, for example – and bundle whatever outstanding loan on a previous car into the monthly lease payment. The result? New car reliability and comfort with affordable payments. At the end, the buyer does not own a car, but at least is financially square. Which of course means they'll be ready to purchase again soon.

Source: Automotive News [Subscription required]

Posted by industry at 12:14 PM in Financial and business strategy news
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Tuesday, 11 March 2008

Volkswagen wants more U.S. sales, targeting more competitive price points

According to a recent Automotive News article, Volkswagen is setting its sights on serious expansion in the United States. Last year, the Audi and VW brands moved just over 328,000 units in the U.S. By 2018, that number will reach 1 million, if Group CEO Martin Winterkorn has his way. “"I am sure if we want to grow, we have to go to the United States," he said.

A first step of the plan involves building a production facility in the U.S., potentially in North Carolina, South Carolina or Georgia. VW’s product lineup will favor smaller and less expensive vehicles, with replacements for both the Jetta and Passat shrinking. A subcompact a la the Polo in Europe will compete with models like the Honda Fit and Toyota Yaris, while a body-on-frame pickup will fill out the larger end of the spectrum. "We need to produce cars that fit the American customer," explained Winterkorn. "The Jetta and Passat are too expensive. We need models that hit the sweet spot."

Source: Automotive News [Subscription required]

Posted by industry at 2:00 PM in Marketing strategy
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Thursday, 6 March 2008

Drivers hanging onto cars and trucks longer as median vehicle age remains high

R. L. Polk & Co. just released its 2007 vehicle population report analyzing the median age of trucks and passenger vehicles currently in use. Passenger cars retained the median 9.2 years that was achieved in 2006, while light trucks increased to 7.1 years from 6.8 last year. Polk attributes the truck increase to a maturing population of pickup trucks and SUVs that consumers bought in the 1990s.

Increased longevity and durability of modern vehicles is seen as the reason behind the older median ages, although slumping new car sales cannot be ignored either. It’s an interesting situation: successful car companies have build reputations on reliability, which consumers embrace by purchasing fewer cars (and happily when their financial situations are stressed). As vehicle emissions laws tighten and manufacturers work to catch up across all vehicle segments, drivers may continue to hold onto older vehicles as long as possible.

Source and image: Green Car Congress

Posted by industry at 8:54 AM in Headlines in the automotive world
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Thursday, 28 February 2008

Fewer 16-year-olds signing up for driving tests

Searching for trends in the automotive industry often leads in predictable directions – sales up or down, certain vehicle segments are leading and new technology is taking over. We hear it all the time, from various sources.

An interesting read via The New York Times highlights one surprising statistic that has plummeted: the number of 16-year-olds with driver’s licenses. In 1998, the Federal Highway Administration reported 43.8 percent of 16-year-olds were licensed; in 2006, that percentage has fallen to 29.8. What could cause such a dramatic decline?

For one, fewer schools are offering driver’s education – about 20 percent today. Back in the 1980s, 9 out of 10 high schools provided instruction. Expensive private schools and filled the gap, but many cannot afford the private rates.

Stricter licensing programs designed to keep 16-year-olds off the roads are a major hurdle, as are higher insurance rates for parents adding a child to an existing policy. But what might really be going on is that parents are simply more willing to play the role of driver. And with kids glued to the Internet and various entertainment devices, the incentive to venture into the driver’s seat as soon as possible has probably waned.

Source: The New York Times

Posted by industry at 3:45 PM in Headlines in the automotive world
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Wednesday, 27 February 2008

German automakers seek cost reductions, hope to increase use of North American based parts

With a Euro-dollar exchange rate that continues to shift in the direction of weaker American currency, German automakers are understandably searching for methods of shifting costs away from the strong Euro. Why buy parts and manufacturing at Euro prices and sell finished product for American dollars?

Of course, German car companies will continue selling at American prices – and competitive ones if they hope to succeed. So the strategy now is to substitute more dollar based North American parts (and manufacturing processes) in place of expensive Euro-sourced components. According to an Automotive News report, SUVs like the Mercedes-Benz ML, Mercedes GL and next generation Audi Q7 are potential candidates for American parts applications. Both Mercedes models are already built in Tuscaloosa, Alabama.

Source: Automotive News [Subscription required]

Posted by industry at 10:43 AM in Financial and business strategy news
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Thursday, 24 January 2008

Smart brand to rely on customer testimonials as major marketing strategy

With just about any new vehicle, auto dealers and manufacturers hope that positive word-of-mouth will contribute in generating sales. Smart USA, however, has a gone a step further and announced that customer testimonials will play a major role in marketing the new ForTwo microcar headed to the U.S. this year.

Dave Schembri, Smart President, told an Automotive News panel that, “consumer advocacy is most important right now. People love to discover new things and tell people about it." He went on to explain that Smart customers do not define an age range or demographic, but instead share sensibilities, attitudes and lifestyles. “Smart is the only car that doesn't define class,” he remarked.

It’s going to be interesting to watch not only the types of consumers purchasing Smart vehicles, but also how they go about spreading the word. Undoubtedly, the internet will play a huge roll in communicating the ForTwo’s virtues (and vices). Can we assume that Smart buyers are information-sharing types whose primary outlet for speaking is the web? Or will Smart cars operate as “rolling billboards,” generating buzz on the streets and initiating true word-of-mouth interaction? We’ll find out soon.

Source: Automotive News [Subscription required]

Posted by industry at 4:03 PM in Marketing strategy
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Monday, 21 January 2008

General Motors considering larger urban retail centers; would separate parts and service from showroom

At next month’s National Automobile Dealers Association convention in San Francisco, General Motors will reportedly detail a plan to consolidate major brands under single retail roofs in large urban areas. GM is concerned about maintaining competitive presence in cities, as some dealers have sold their businesses due to real estate values higher than the franchise values themselves.

The new approach would involve the consolidation of Cadillac, HUMMER and Saab into a core brand group, in the same way that Buick, Pontiac and GMC franchises have merged. Chevrolet and Saturn would continue to stand independently, leaving GM with four distinct product “lines.”

One drastic change could involve the separation of showroom and service center, as precious floor space would be used to display product. Service centers would presumably migrate to less expensive city outskirts – a phenomenon that has occurred in a few, albeit limited, markets. But would car buyers feel alienated by the dealers sending them down the road for oil changes?

Analysis: Combining GM brands may be sensible from a business stand point, but dealers should be wary about displaying different brands sharing the same architecture or platform next to one another.

Source: Automotive News [Subscription required]

Posted by industry at 8:11 PM in Auto dealer headlines
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Tuesday, 8 January 2008

Kia set to launch Certified Used program this year; last among full-line auto manufacturers

Sales of Certified Pre-Owned (CPO) vehicles across the industry have grown steadily year-to-year since the beginning of the decade. Customers are not only attracted to the comprehensive inspections and warranties, but also many of the financing incentives offered by manufacturers. Beginning this year, Kia will embark on selling Certified Used models, representing the last full-line manufacturer to embrace this new “type” of retail vehicle.

For a Kia to qualify, the specific vehicle must be no more than five years old and have fewer that 60,000 miles on the odometer. The Certified Used warranty is a 10-year, 100,000-mile deal, beginning when the car was first sold as new. Kia hopes to sell between 13,000 and 15,000 certified autos in 2008, potentially bumping up the residual values of models across the Kia brand.

Source: Automotive News [Subscription required]
Image: Kia Media [2008 Kia Rondo]

Posted by industry at 2:42 PM in Marketing strategy
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