The Polk Blog

Digital video is, to put it mildly, a very hot topic in the online and mobile advertising industry. Recently, moves by digital video companies have placed them in direct competition with television. Let me explain. Companies like Hulu and Netflix have created a model to view content previously reserved for larger screens, be they television or theater. YouTube, the largest video viewing service, recently broke their service into channels with original content. Two different models, both focused on gaining eyeballs at the expense of television or as additional time spent viewing content by consumers.

One of those models helps users discover shows they may not have seen before, by offering suggestions and posting "popular" clips/shows in prominent places on their websites, a la Hulu and Netflix. Others like YouTube are touting channels with original programming. The question this elicits is what does all this mean for television? The first thought is television erosion. The second thought, is that it may speed up the networks' entrance into cross platform deals. Will shows eventually be shown "live" via online streaming, along with the original TV airing? Based on the information gathered from the reporting of the New Front 2012 Conference from Ad Exchanger, where we heard "the TV is just another screen," and found out more about Yahoo's deal with ABC to produce and air a Tom Hanks backed original program on the Yahoo! video network, it would seem there is a 'frienemy' situation happening.

Outside of big events and huge shows, the value of the national TV ad buy will continue to decrease as online portals and channels fragment the video market. The consumer's idea of content anywhere, on any platform at any time will become increasingly acceptable and expected. Networks will eventually acquiesce so they don't see a decrease in viewership but will likely realize lower ad profits in the beginning. Cable networks are digging their heels in, probably to their own detriment. And bringing up the rear, per usual, will be ad dollars. I say this half tongue-in-cheek because I don't want to see the same thing happen to the automotive advertising industry that happened in social media and display advertising when it became obvious they were going to rapidly grow. In case you were wondering what happened, we were left behind in the beginning, ceding valuable learning time and opportunities to take advantage.

Here's a particularly artistic video from Ford that has shown up online, as well as on television. Branding such as this will be key for brands to make content transferable on all screens. More entries such as this, properly placed in front of the right audiences with good data will make the digital video medium very relevant and dangerous to television.

Lastly, due to entrenchment, it has taken longer for digital video to take hold and find a business model, but the train has left the station and it is obvious that online media entities are not slowing their engines. It will happen soon, and where will your ad dollars be? Already, we've seen that targeting audiences, with data, in display has been very effective. The same will be true in digital video, if not more so. Plus, video is great for branding campaigns where analysis is easier than on television...where there is (almost) no analysis. Ergo, for the ad industry, digital video is a friend. For the traditional television industry it's a mixed bag, but they better cozy up and make a new buddy because content is increasingly platform agnostic and it's clear that diversification is the new normal.

What say you, about the future of digital video's affect on TV ad dollars? Pontificators welcome!

Posted by Therran Oliphant, Product Marketing Manager, Polk (05.08.2012)

April auto sales continued at the strong pace set in the first quarter with a Seasonally Adjusted Annual Rate (SAAR) of 14.4 million light vehicles. This is the fourth month in a row that SAAR passed 14 million and it represents a real milestone in the auto sales recovery. Noting year-to-date sales strength, Edmunds.com, recently raised its 2012 forecasts. It appears that auto sales are accelerating at long last, but that does not mean that no speed bumps lie ahead. Between high gas prices, a fickle economic recovery and resin shortages, the news media sounds alarms almost daily, raising the question of how confident we should be about auto sales. Here's a brief rundown on what to worry about and, just as importantly, what not to worry about:

1. Gas Prices: Rising gas prices have figured prominently in the news since the beginning of the year, with some observers speculating that the average nationwide price of regular gas could rise as high as $4.50 or $5.00 per gallon by Memorial Day. Since the beginning of April, though, gas prices have declined, falling 11 cents during the past four weeks. As a result, the likelihood that gas prices reach $4.50 or even top $4.00 by Memorial Day has decreased substantially. In any case, higher gas prices pose limited risk to car sales, especially if gas prices increase slowly enough that consumers have time to adjust their budgets and habits accordingly. When gas prices increase, consumers tend to change what kind of car they buy rather than not buy at all. The recent gas price hike as well as previous hikes revealed little change to auto sales. Instead, consumers drove less and were more likely to purchase vehicles with greater fuel efficiency.

• Verdict: No worries here.

2. Economic growth: A constant theme throughout this recovery has been the slow pace of economic growth. Just recently, the initial estimates of GDP growth for the first quarter of 2012 failed to excite—coming in below expectations and well under the growth seen in the fourth quarter of 2011. Slower growth is not surprising for this recovery, since recessions caused by financial crises, such as the recent Great Recession of 2007, tend to require longer recoveries. And the first quarter data also showed strength in two key components of GDP: consumer spending and exports. Strong economic growth has not been necessary for strong auto sales in the past, and it may not be now, given the strength of pent-up demand and the pressure from the aging U.S. fleet.

• Verdict: No worries here, for now.

3. Car prices: At the beginning of the year, prices were expected to become more competitive in 2012, as automakers restocked inventories and expanded production to increase their market shares. To date, though, discounts from MSRP have actually decreased, to the lowest levels of the past decade. Many all-new versions of popular products – particularly in the midsize and compact crossover SUV segments ‒ will support higher prices on these vehicles, as will automaker commitments to keep incentives low. And, with higher-than-expected demand streaming into the market, the anticipated oversupply scenario may not materialize. Ford has already indicated that its production may not keep pace with demand. Shutdowns from resin shortages also threaten to constrain supply. As a result, prices could remain tight for the foreseeable future. But not all pricing news is dim. With the Federal Reserve’s support, interest rates are likely to remain low as well.

• Verdict: Consumers should worry—a little; ultimately, automakers and dealers may need to worry as well.

4. Government policy: I read at least one article every day about potential government fiscal and/or monetary policy and its effects. For example, has economic growth been slow enough for the government to implement additional stimulus? Will there be more quantitative easing, a.k.a. QE3? Will the government (finally!) make a long-term decision about the expiring “Bush” tax rates and other spending cuts, or will we fall off of the so-called “Fiscal Cliff?” At what point will astronomical budget deficits significantly impact the average American’s budget? While some of these actions–and their negative impacts‒may never pan out, the problem is that inaction and speculation about potential government action (and its impact on consumer spending) breed uncertainty. Uncertainty can cause consumers to delay major purchases like automobiles. At least part of the pent-up demand that accumulated during the recent recession and recovery is a testament to such delays. And, with the upcoming Presidential election added to the equation, the uncertainty about government policy poses a definite risk to auto sales this year. The good news, though, is that when/if the uncertainty on some of these fronts is resolved, car buyers should return to market.

• Verdict: Worth worrying about, for now.

What about you? What are you worried could dampen auto sales momentum? What are you not worried about? Post your thoughts here!

Posted by Lacey Plache, Chief Economist, Edmunds.com

About Lacey:

Lacey Plache is the Chief Economist at Edmunds.com. By training, she is a competition economist and an economic historian, with a Ph.D. from UCLA. She finds it fascinating to analyze the numerous competitive forces at play in the auto industry and to predict emerging trends. And, she thinks it’s a great job perk to go to auto shows and see the latest hot new cars. Lacey spends a significant portion of her time attempting to disprove the notion that economists can neither write nor speak so that the rest of the population can understand what they are saying. When she’s not writing about auto industry economics, she writes poetry in her spare time—usually not about cars or economics. Lacey is an environmentalist when it makes economic sense and is a proud early adopter of the hybrid car and now the plug-in hybrid. Her favorite form of motion is running, followed closely by biking. She also enjoys taking jet planes to beautiful beaches and must take a road trip to the desert every spring. Lacey is delighted to be a guest blogger for Polk and looks forward to lively forum discussions with Polk readers.

You can follow Lacey Plache on Twitter @AutoEconomist.

GM's consolidation to four brands and Ford's discontinuation of Mercury have helped to create the current environment in which there is an exceptionally high number of "orphan owners" on the road. "Orphan owners" are driving cars or light trucks from a make that no longer markets new vehicles in the U.S. As of last October, the latest date for which Polk has Vehicles In Operation (VIO) data, there were 18,529,769 million "orphan" cars and light trucks on the road from 16 makes. Five metro areas had over half a million orphan owners each, including New York, Chicago, LA, Detroit and Philadelphia.

When looking at orphan owners as a percent of all drivers on the road, the markets with the highest results understandably are in the Midwest, including several markets in Michigan and Ohio where there would be a high mix of company cars. The three markets with the highest percent of orphan owners are Flint, Lansing and Grand Rapids. More than 16% of all vehicles on the road in these markets are from makes no longer in business. In Flint, almost one of every five drivers is an "orphan owner," which again makes sense since GM has historically had a major presence in Flint.

There are several large cities which do not rank among the Top 25 with the highest percent of orphan owners, but nevertheless have more than 10% of their drivers in this category. These cities include Rochester (New York), Cleveland, Milwaukee, Minneapolis/St. Paul, St. Louis, Columbus and Chicago. Several of these metropolitan areas at one time were home to domestic assembly plants.

Orphan owners present a golden opportunity for new vehicle manufacturers. These drivers are forced to shop for a new brand regardless of their satisfaction with their current car or light truck. Manufacturers and dealers can take advantage of this situation by using available information about the owners, including demographics as well as likely trading patterns, to market appropriate products directly to them. Right now this pool of "orphan owners" is exceptionally large and offers a rare opportunity to those OEMs and dealers willing to "step up."

Posted by Tom Libby, Lead Analyst, North American Forecasting, Polk (05.02.2012)

If the new 2013 Lincoln MKZ does as well after its launch as it has beforehand, it will be a huge success. At both the North American International Auto Show in Detroit in January (concept vehicle) and the New York International Auto Show just a couple of weeks ago (final production version), the media raved about the car. Two compliments were mentioned repeatedly: the car's styling is modern, clean and elegant, and there is virtually no similarity visually between the MKZ and its sister vehicle, the new Ford Fusion. This differentiation from the Fusion is important and a new development; past entry-level Lincolns have had more than a passing resemblance to both Ford and Mercury counterparts.

Recently the MKZ has gotten more praise. Adam Jonas, a Morgan Stanley automotive analyst, commented, "The car is stunning...it shows Ford’s commitment to the brand…you have to hand it to them; they’re really going for it." The head of a design firm in San Francisco, Mr. Gadi Amit, recently said of the new MKZ’s front grill, "Everything flows together very nicely.  It’s very elegant, very refined."†

If there is one part of the premium space Lincoln needs to get right, it is the luxury compact car segment in which the MKZ competes. This is the largest premium segment and accounts for almost 30% of all premium registrations. Because of the low prices of the models in this segment, these cars often appeal to owners of non-luxury products such as the Fusion, Avalon, Camry, Altima, and LaCrosse who want to move up to a more prestigious nameplate. And if Lincoln can get someone into an MKZ, hopefully down the road that buyer will step up to the more profitable MKS, MKX or MKT.

But Lincoln can only do so much with the MKZ. As the nearby table illustrates, Lincoln currently offers only five cars and light trucks, tied with Infiniti and Cadillac for the lowest number of entries among the high-volume luxury makes. And Lincoln’s products cover less than 80% of the luxury market based on volume. It’s as if a basketball team is trying to compete with just four players. In contrast, Audi and Mercedes-Benz both offer 14 models, almost three times Lincoln’s product slate. Two glaring holes that Lincoln needs to fill are the luxury compact CUV and luxury sport categories; together these account for more than 12% of the luxury space. The Polk U.S. Forecasting Practice believes a small Lincoln crossover built on the Escape architecture is in the pipeline, and Lincoln dealers could use that product as soon as possible.

†Both quotes are from The New York Times, April 12, 2012

Posted by Tom Libby, Lead Analyst, North American Forecasting, Polk (04.20.2012)

This month, the Jacob Javits Center in New York is the focal point for the automotive industry as it hosts the 2012 New York International Auto Show from April 4 to April 15. Each year, automotive executives, dealers, suppliers, media, automotive consumers and simply the curious descend upon New York to check out the new cars, trucks, crossovers, hybrids, electrics and futuristic concepts.

On April 4, part of the Jacob Javits Center served as a launching pad for the first Annual NAMAD (North American Minority Auto Dealer Association) Diversity luncheon. The event was hosted by NAMAD President, Damon Lester. Over 50 attendees heard about:

1. The current state of minority auto dealers in the U.S.
2. Automotive trends of minority consumers
3. Customer retention trends and improvement ideas at the dealer level
4. Motivational personal story, "When times are tough don't quit and always do the right thing"
5. Suggestion for OEMs, established minority dealers and aspiring minority dealers to work together in a formal mentoring / development process to ensure that future minorities are afforded retail opportunities (this plan would include funding support for new dealers from OEMs and established minority dealers)

These topics were addressed by nationally recognized speakers:

• Fenimore Fisher (Moderator) – Managing Partner of R. Fenimore Fisher Group, LLC
• Sara Hasson – Vice President at Univision Media
• Shau-Wai Lam – Chairman of DCH Auto Group 
• Jesse Armstead – Former NFL star and current Dealer Principal at Englewood Cadillac and Hamilton Honda
• Marc Bland – Head of Diversity & Inclusion at Polk

Minority consumers (African Americans, Asians and Hispanics) represented one of out of five new vehicle purchases in the U.S. during 2011, yet minority dealers represent only 6% of the 17,800 U.S. new car dealerships. While NAMAD has been in existence for over 30 years and has been steadfast in its efforts to lead progress for the minority dealer community, there is still a lot of work remaining to close the gap between minority sales share and retail representation. Although the luncheon was very successful, I look forward to returning to NY next year for the bigger and better second annual event.

The above are my thoughts on the 2011 NAMAD Diversity luncheon. I would love to hear your comments on this annual event.

Pictured left to right: Fenimore Fisher, Shau-Wai Lam, Glenda Gill, Marc Bland, Alva Mason, Sara Hasson, Jesse Armstead and Don Esmond

Posted by Marc Bland, Head of Diversity & Inclusion, Polk (04.12.2012)

Everyone wants to figure out what effect the digital landscape is going to have on the mammoth $70B television advertising spend that occurs yearly. Already, we've seen display advertising video ad nets, like Videology, TubeMogul and Adap.TV begin to buy remnant inventory through the Real-Time Bidding (RTB) process, out of exchanges and Demand Side Platforms (DSPs). While each of their business models is different, this is a drop in the bucket compared to the total television/video inventory that is available. 

First, we need to attempt to define what we're talking about. I look at it like this. Video is original content, made specifically for the online and mobile environments. TV consists of content that was developed for distribution through traditional network, cable or premium stations but because of today's media choice, it is made available everywhere. Online display advertising can be bought against these two types of streaming capabilities and channels. Also, set-top-box data can make the traditional TV ad buy more closely resemble the online ad buy. I'm not even going to mention connected televisions yet, but they will have scale one day and we'll discuss.

This is all a big deal, because in current traditional television ad buying, there is a ton of waste. True, advertisers have the opportunity to reach 96% of the population. But, the buy is very uninformed due to the panel method of measuring and the inability to profile the audience. This leaves the advertiser unclear about true reach, while also unclear about the lifestyle and demographics of each advertisee (if that's a word). Adding set-top-box data to the equation allows the media buyer more insight into their target audience size and composition. 

So, what does this all mean? It means there are opportunities and huge benefits to the advertising and online ad industries.

1.   Scale

Gizmodo estimates that 2.65 million customers have left cable since 2008. This means that more people are seeing the value of viewing content solely through online channels, like Netflix, Hulu Plus, Content Websites, etc. Full disclosure: this will likely be me in the next 60 days. I think it's a benefit because it adds impressions and scale to the often hard to fill video ad buy. More opt-in users offer more insight to advertisers, strengthening the data models, and ultimately ad performance, which will eventually equal more dollars spent in online video advertising.

2.  Transparency

Advertisers feel as though they have a right to know where their creative is running, when, to whom and how often. Rightfully so. They spend huge dollars all over the media landscape. There are issues with transparency in almost every channel. However, as larger brand dollars flow to the online advertising ecosystem, there will be more attention paid to transparency online, where it is completely feasible to get a report of where your ads ran. Also, to what kind of targets your ad was placed in front of.

Today, there is still a lot of contextual and blinded third party data buying. Plus, there are networks out there that still don't want to give up their secret publisher network media buying sauce. Contextual can be mixed in to the overall buy, but it should not be the determining factor for your ad buy. Can you imagine running your midroll ad during Saturday Night Live digital playbacks? Everyone watches SNL; you would prefer to buy against the audience, knowing they were watching SNL, so you could place your humorous spots in front of the right targets, I would think.

3.  Recall

Recall can be one of the strongest predictors of conversion. In a stupefying study, Nielsen promoted this idea by completing a 14,000 person survey that proved just that. While they qualify this by noting that they're discussing premium online video content, this is still stupefying. I digress. (Premium) video beats television ads in all four categories of General Recall, Brand Recall, Message Recall, and Likability in the study.

I have no hard evidence, just theories, as to why this is so: digital video ads don't last very long; clicking (ergo engagement) is necessary when watching digital video; digital video ads are interactive and often, all of these features further the message seen in other channels with the added "lean forward" aspect that occurs when engaging with media. 

What do you think about the future of connected video, either through set-top-box, connected television or on mobile/online channels?

Posted by Therran Oliphant, Product Marketing Manager, Polk (04.11.2012)

One of the byproducts of the recent collapse of the automotive industry has been a renewed and some might say "zealous" focus on keeping customers loyal to the brand. There is nothing like a near-death experience that some car manufacturers experienced to shake up any complacency and force a reordering of priorities. And what has risen to the top of the list for almost all OEMs is the question of, "How do we do a better job of keeping our customers loyal – and what causes customers to be loyal or defect from the brand?"

These are complex questions and the answers differ depending on the brand. 

Polk and AutoTrader.com recently worked on a study of luxury buyers to find out what was behind the decisions of luxury buyers to either stay with a luxury brand or switch. The luxury segment is of particular interest because it is forecast to grow more rapidly than the rest of the market – 12% in 2012 according to Polk’s new vehicle forecast vs. 8% forecast growth for the overall U.S. new vehicle market. Plus, building strong customer relationships and loyalty are particularly important to the success and growth of any luxury brand.

The study showed that there were some overall drivers of loyalty among luxury brands. Brand affinity, which included things like a good past experience, trusting the brand, good customer service and brand reputation topped the list. "Quality/ reliability" was next, followed by "Driving Characteristics." Thinking about luxury buyers, the list of attributes makes sense. while price/good value is important to any consumer, it is not at the top of the list for these consumers, though it does fall within the Top 5.

What I found very interesting about this study is the differences that were uncovered between the luxury brands. The study brought to light that there are different motivations driving loyalty and defection for each brand. The study revealed that while consumers recognize the strengths of the luxury brands, they may still decide to purchase a different luxury brand depending on their priorities. Each of the brands studied (Acura, Audi, BMW, Cadillac, Lexus, Mercedes) had different strengths and different vulnerabilities. The table below highlights the perceived brand strengths of the brand loyalists.

To find out more, read the latest Polk View. This study looks at one important segment of the automotive study. Stay tuned for more as Polk and AutoTrader delve into some other key segments of the automotive market. After you take a look at a summary of the research results, tell us about what you found out that surprised you.

Posted by Mark Pauze, Sr. Solutions Consultant, Polk (04.04.2012)

Sales of hybrid and electric vehicles remain modest. And, the creation of the infrastructure to support the use of these vehicles is proceeding in fits and starts. In January, hybrid registrations accounted for just 2.29% of all new vehicle registrations in the U.S., down from 2.51% a year ago.

Looking at electric vehicle registrations, the good news is that the January total climbed eight-fold versus January 2011. The bad news is that the 2012 total was just .8% of the industry. Nissan Leaf registrations in January totaled 682, down from 910 in December and far below the monthly turn rate needed to generate the planned-for annual deliveries; meanwhile, GM recently announced a five-week closure of the Volt assembly line to reduce inventories. All vehicles powered by alternative powertrains, including hybrids, electrics and diesels, accounted for 5.11% of the industry in January, up from 5.02% a year ago, but still nothing to brag about. 

On March 27, Azure Dynamics, which retrofits Ford Transit Connects to electric power, announced that it had halted production and filed for bankruptcy. Recently Fisker Automotive announced two recalls and a delay in receiving federal funds due to a failure to meet agreed-upon timetables. A123 Systems, which supplies batteries to Fisker, has just announced a recall that will cost more than $50 million. A123 also admitted that the failure of its battery in a Fisker Karma product had been the cause of the Karma's shutdown while being tested by Consumer Reports. Also, Bright Automotive, which had made plug-in hybrid vans, recently closed after it failed to secure federal loans.

Although the slow progress of hybrid and electric vehicles would suggest customer buying patterns are not changing as gas prices rise, data on the mix of four-, six-, and eight-cylinder gas-powered engines indicate otherwise. Customers are clearly moving to smaller powertrains. In 2011, four-cylinder engines captured almost 47% of all new vehicle registrations, up 44% and 15 percentage points from 2007. This past January, the four-cylinder mix was just a hair under 50%. In the midsize non-luxury car segment, one of the largest in the industry, the mix of four-cylinder powertrains climbed from 69% four years ago to 86% in 2011. And, as one would expect, installation rates for eight-cylinder powertrains have retreated, falling more than 30% to 16.55% of the market in 2011. Six-cylinder engines have also lost favor, though not to the degree of eights. In 2011 six-cylinder powertrains comprised about 35% of the market, down more than 15% from four years earlier.

The data mentioned above are only through this past January, but gas prices have escalated considerably since then, so we can expect to see a continuation and possibly acceleration of the movement to smaller gas-powered engines. But the movement to hybrid and electric vehicles, which gets much more publicity, remains elusive.

Posted by Tom Libby, Lead Analyst, North American Forecasting, Polk (03.30.2012)

In my last post, I discussed the importance of retaining young vehicle buyers. In this blog, I thought I would share some 2011 calendar year-end findings regarding owner loyalty and age.

The chart below shows the distribution of owners returning to market based on age.

Owners between the ages of 35-64 account for more than 70% of all return to market activity. Yet as seen in the graph below, less than 50% (46.6%) of these owners are loyal to their given brand.

It is clear from the graph above that customer loyalty increases with age, making it all the more important to focus on customer engagement early in the ownership lifecycle as these efforts pay dividends when owners return to market for their next vehicle purchase.

So who is winning the battle when it comes to retaining owners by age when they return to market? Ford. Not only does Ford have the highest rate of brand loyalty in the industry, Ford is also No. 1 in retaining owners within all age categories. A breakdown of the top three in each age category can be seen in the table below:

*Minimum of 200 repurchase events.

Posted by Brad Smith, Director, Loyalty Management Practice, Polk (03.29.2012)

An analysis of new vehicle buyers shows that their average age was 51 years old in 2011, three years older than buyers in 2007. In 2011, 40% of all buyers were aged 55 years or older, up from about 30% just four years earlier. And, in keeping with much commentary about today’s youth, in 2011, only 11% of all new vehicle buyers were aged 34 years or younger, down from almost 16% four years earlier. Perhaps today’s young people indeed do have less interest in cars or perhaps they don’t have the money for a new car, or both.

Among the makes on the market today, every OEM is now catering to an older buyer than back in 2007, with the exception of Buick. This OEM has lowered the average age of its buyers from 62 to 59, though the current age is still the second oldest after Lincoln buyers (60 years). Buick has brought in more young buyers by dramatically altering its product portfolio, adding the Regal and placing much greater emphasis on the Enclave (average age: 56 for both) while discontinuing the Lucerne (average age: 70 years). In 2011, the Regal and Enclave accounted for more than half of all Buick retail deliveries. Going forward, Buick will benefit from the recently-launched compact Verano, though the age of the Verano buyer so far (59 years) is higher than the Buick team probably would like. Polk’s Automotive Forecast indicates Buick has additional new products and powertrain enhancements in the pipeline, which should attract younger buyers.

In the luxury space, Land Rover attracts the youngest customer (average age: 47 years) while Lincoln and Cadillac appeal to the oldest. Both these findings also held four years ago, though Lotus tied with Land Rover back then. The typical Lincoln buyer in 2011 was 60 years old, up five years from 2007 and shows the greatest increase in the luxury category. One advantage of having older buyers is that according to consumer research, their make loyalty and retention rates tend to be higher.

Looking at the non-luxury category, Mazda, Mitsubishi and Volkswagen drivers are the youngest at 48 years old and they were also the youngest (along with Suzuki and Nissan buyers) four years ago. Chrysler, Freightliner and Buick buyers have the most grey hairs in the non-luxury segment. If you remove Buick from the equation, the range of average ages of non-luxury buyers is a mere nine years ‒ 48 to 56.

While customer age data can be informative, it can also be deceptive. Much of the change in average age is due to a change in mix, including body type and/or powertrain mix within a model or model mix within a make, among others.

Posted by Tom Libby, Lead Analyst, North American Forecasting, Polk (03.28.2012)

With the recent upturn in gas prices, I thought I would look to see if there has been a noticeable impact on the kinds of vehicles that people are buying. Gas prices have been flirting with the highs seen in 2008, but it has been a more gradual increase this time around. Nonetheless, I was curious to see if the elevated gas prices were starting to impact vehicle choices.

The truth is that with the registration data through January 2012, there is not a clear correlation between gas prices and hybrids, car share or smaller segment vehicle registrations or with a drop in larger vehicle purchases. I had to think about the market dynamics before I could make sense of it all. Here are some thoughts on what I think is behind a more moderated reaction to gas prices than what we have seen before. 

More Gradual Increase = More Gradual Change — Gas prices have not spiked as dramatically as before allowing people to acclimate themselves and not be as reactionary to gas price hikes. The market is resetting a “new normal” for itself in terms of expectations of what to pay at the pump. Gas prices will have to hit a new high to send similar shock waves through the market the way they did in 2008.

A More Fuel Efficient Vehicle is a Relative Thing — Choosing a more fuel efficient vehicle means different things to different people. Driving a Ford Explorer is a more gas efficient choice compared to a Chevrolet Suburban. The point is that small compact cars will not work for everyone and there are many more fuel efficient vehicles in different sizes to choose from today.

Overall Value is Still the Priority — While hybrids and electric vehicles may offer better gas mileage, they may not offer better overall value in terms of total cost and function. The market has not been flocking to alternative fuel vehicles, in part, because they are still relatively expensive and in part, because there are some great fuel efficient choices with conventional engines.

We have yet to see gas prices peak, something which is predicted to happen this summer. Until then, the market seems to have adapted to sub $4 a gallon gas. If gas prices spike much above $4 a gallon, we may see bigger changes in vehicle purchases. Stay tuned as this story continues to evolve with gas prices continuing to climb.

Posted by Mark Pauze, Sr. Solutions Consultant, Polk (03.28.2012)

Common sense suggests that gaining a first time buyer provides the opportunity to create a customer for life. Yet analyzing repurchase behavior among the younger demographic set suggests that manufacturers and dealers alike are not doing enough to retain younger buyers when they return to market. Admittedly, younger buyers represent a small percentage of total repurchase activity, less than 1% for buyers 18-24 and 7.5% for buyers 25-34, but it’s not necessarily about the value these customers represent today, it’s about customer lifetime value.

If we assume the average new vehicle buyer purchases their first vehicle between the ages of 25-35 at today’s replacement rate (71 months for new vehicle buyers), they will purchase 8-10 new vehicles over their lifetime. While that may not seem like much on the surface, consider it from a lifetime value perspective where profit per vehicle, service and referrals play into the equation. With this in mind, the young new vehicle buyer closely resembles an investment in the future.

So what can manufacturers and dealers do to retain young vehicle buyers? The answer is simple: Engage them. Building loyalty isn’t about rewarding consumers for their patronage, it’s about building a lasting relationship. Young vehicle buyers will experience many changes in their lives and these changes will likely impact their vehicle purchase patterns. From a small coupe to a minivan to an SUV and ultimately a luxury vehicle, the dealer and manufacturer that are able to build a relationship and have a vehicle lineup that meets young buyers' changing requirements will be in a better position to this segment's loyalty.

Posted by Brad Smith, Director, Loyalty Management Practice, Polk (03.27.2012)

Engaging diverse markets has become an increasingly important initiative for the automotive industry. The contributions of these consumers have been widely documented by automotive analysts including my colleague, Marc Bland. In an effort to further quantify the value of diversity marketing, I thought I’d look back at 2011 from an ethnic loyalty perspective.

In 2011, 1,033,097 African-American, Asian and Hispanic new vehicle owners returned to market to buy a new vehicle. Of these owners, 47% were loyal to their previous brand (Chevrolet to Chevrolet) while 53% were loyal to their previous OEM (General Motors to General Motors). These numbers are comparable to the national averages for customer loyalty.

Toyota had the largest share of the returning ethnic population by having more African-Americans, Asians and Hispanics return to market for a new vehicle than any other brand ‒ 54% bought another Toyota brand vehicle. Honda had the second largest number of Asians and Hispanics return to market volumes with 52% of the ethnic population buying another Honda vehicle. Ford had the second largest population of African-Americans return to market with 62% buying another Ford vehicle.

One of the biggest surprises was the manufacturer level loyalty among African-American owners of Cadillac, Lincoln and Buick brand vehicles. Some 67% of the Cadillac and Lincoln owners bought another vehicle from General Motors and Ford respectively, and 66% of Buick owners bought another vehicle from General Motors.

I have stated time and time again that increases in both market and profitability are dependent upon increases in owner loyalty. Investing in and nurturing customer relationships is a critical to customer engagement, which in turn leads to customer loyalty. OEMs and dealers alike must continue to embrace diversity marketing – these consumers represent a significant portion of the vehicle buying population and are loyal to their brands as the above numbers illustrate.

Posted by Brad Smith, Director, Loyalty Management Practice, Polk (03.26.2012)

The non-luxury sub-compact car segment, home to such well-known cars as the Ford Fiesta, Honda Fit, Nissan Versa, and Toyota Yaris, is one of the hottest in the industry. Consider the following facts:

1. The segment’s new registrations in January increased 26% versus January 2011, the fifth highest increase among all 29 segments
2. The segment’s share of the industry reached 4.73% in January, up from 4.12% last January and 4.0% in 2010
3. This segment is now the third largest car segment in the industry, behind only the midsize and compact non-luxury car segments
4. More than twice as many non-luxury sub-compacts were registered in January as all non-luxury sporty cars put together

There are at least four drivers of this growth. One is the ongoing increase in gas prices. A second is the fact that these models are no longer the econoboxes of old; rather, they come well-equipped with features formerly available only on larger vehicles (e.g., 10 airbags, heated leather seats, and remote start capability). Third, almost all major OEMs now participate in this segment, driving up the number of models from 13 two years ago to 17 today. Lastly, some OEMs have replaced modest entries with much more competitive products; an example is the Chevrolet Sonic which succeeded the dated Aveo.

In January the Nissan Versa was the most popular non-luxury sub-compact, capturing 21% of segment registrations, followed by the Sonic (13%) and Accent (11%). The Versa was also the segment sales leader in 2011 with a 19% segment share, but last year, the runner-ups were the Fiesta (14%) and the Fit (11%).

Profitability has always been an issue in this segment. Fortunately consumers appear to be opting for mid-level trim packages rather than the base packages, a trend that will improve the OEMs bottom lines. Sonic, Fiesta, Accent and Rio buyers have gravitated to the LT, SE, GLS and LX trim packages, respectively, all of which are at least one level above the base category.

Going forward, the Polk automotive forecast sees this category continuing to grow. More makes will be moving into this segment, including Dodge and Subaru. And those OEMs already participating will be launching derivatives of existing entries, including a four-door Fiat 500, a sport utility version of the MINI Cooper, and electric vehicles derived from the traditionally-powered models, for example.

Posted by Tom Libby, Lead Analyst, North American Forecasting, Polk (03.22.2012)

Recently some friends and I were talking about the fact that Mercedes-Benz and BMW are fierce competitors, and I mentioned that Audi was making progress and should also be included in any discussion about leading luxury makes.  One of my friends responded, “I’ve been hearing that for twenty years.” His skepticism and sarcasm took me by surprise. I decided to look at the registration data and see if Audi was in fact getting closer to MB and BMW in this country, or not.

Over the past five years, Audi has made a lot of progress in the U.S. luxury market. With several successful new products including the A3, A5, A7 and Q5, Audi’s share of the luxury market* has almost doubled from 4.5% in 2006 to 8.0% last year. However, Audi’s two German rivals have also fared well. BMW’s share has climbed from 14.1% to 16.9% over the same time period, and Mercedes-Benz’s portion has increased from 13.0% to 16.6%. The gap in market share between BMW and Audi has declined slightly from 9.5 to 8.8 percentage points, but the difference between Mercedes-Benz and Audi has grown from 8.4 points to 8.6 points.

Looking at the premium segments, Audi has made tremendous progress with the Q5 in the growing compact premium crossover segment. In 2011, the Q5 out-sold the Mercedes-Benz GLK and trailed the X3 by less than 3,000 units. Audi has also captured about 18% of the subcompact premium segment with the A3, though it trails the BMW 1-Series and Mercedes-Benz is not yet in this category. Audi has also made strides in both the midsize (A6 and A7) and fullsize (A8) luxury sedan categories, where its shares are up more than a point and four points, respectively. Unfortunately, Audi’s rivals have also gained ground in both these categories, propelled by new products. Audi is continually challenged in the compact luxury sedan category, one of the largest in the premium space; the A4 has not been able to gain any traction versus its two more popular German competitors, the 3-Series and C-Class. So, while Audi has moved forward in the U.S. luxury space, its German competitors have kept pace and generally maintained their lead.

While Audi, BMW and Mercedes-Benz have been improving their positions in the premium field, several competitors have been back-pedaling. In fact, five of their primary rivals, including Acura, Cadillac, Lexus, Lincoln and Volvo, have all lost share during the past five years. Lexus has ceded three share points and Acura two. Only Infiniti has managed to retain its position.

There are a plethora of new premium products hitting the U.S. market in the next couple of years, and much of it is concentrated in the compact and subcompact segments. Audi will launch a face-lifted A4 sedan, an A3 sedan, a diesel version of the Q5, and a Q3 slotted below the Q5. BMW will bring an I3 all-electric vehicle, a 4-Series, a hybrid version of the 3 Series, and both X1 and X4 crossovers. Mercedes-Benz will bring out a redesigned GL, a redesigned SL Class, a face-lifted GLK Class, all-new A and B Classes, a diesel version of the C Class, the all-new CLC (baby version of the CLS), and a redesigned S Class. And this is not to mention the new products coming from the other premium makes or the fact that Lexus this year will have replenished inventories with which to challenge the Germans. With this in mind, Polk sees the premium market’s share of the total U.S. light vehicle industry rising from 11.3% last year to slightly more than 12% in 2012.
  
*Share of the U.S. luxury segments

Posted by Tom Libby, Lead Analyst, North American Forecasting, Polk (03.21.2012)

Last month, I had the opportunity to speak at the Digital Market Strategies Conference, an event hosted by First Class Educators. If you are focused on the retail side of the automotive industry and haven’t attended an event hosted by First Class Educators, I highly recommend it. The staff, venue and speakers are top notch.

I co-presented during the afternoon keynote address with Matt Murray from Dealer.com. Our session focused on the impact of social media on initial vehicle purchase and repurchase at the dealership. As part of the session, I asked the audience two questions:

1. What is the average dealer loyalty rate in the US?
2. How many of you have seen your dealer loyalty scorecards?

Answers to the first two questions ranged between 60-73%, a far cry from the national average of 30% and no one in the audience had seen their dealer loyalty scorecards. Knowing that the audience was comprised mostly of Internet Marketing Managers, I wasn’t entirely surprised by the responses, but at that moment I realized a fundamental issue with customer retention at the retailer level. Every dealership employee should be responsible for customer retention and ultimately one individual should be accountable (Dealer Principle or General Manager). While I believe everyone at the dealership is responsible for customer retention, they need to see and understand the metrics.

So how do we accomplish this, as an industry? I believe it can be broken down into 3 simple steps:

1. Manufacturers need to supply their field and dealers with dealer level loyalty metrics
2. Field organizations should educate and train dealers on repurchase loyalty metrics
3. Dealer Principles and General Managers must make customer loyalty everyone’s responsibility by sharing the metrics throughout the organization and identifying opportunities for improvement

Dr. H. James Harrington once said, "Measurement is the first step that leads to control and eventually to improvement. If you can't measure something, you can't understand it. If you can't understand it, you can't control it. If you can't control it, you can't improve it.” While I believe this to be true, I will put a slight spin on it, "Measurement is the first step toward responsibility and ultimately accountability."

Posted by Brad Smith, Director, Loyalty Management Practice, Polk (03.20.2012)

Gas prices have risen $0.40 on average for all grades in the past six weeks, igniting consumer interest in more fuel efficient vehicles. Small car market including hybrids, electric vehicles (EVs) and plug-in hybrids (PHEVs)—soared almost 30 percent to 3.2 percent, its fifth highest month ever. The stars would seem to be well-aligned for EV and PHEV sales to take off, but that has not yet happened. Hybrid sales—particularly Toyota Prius —accounted for the bulk of February's momentum. EV/PHEV market share, meanwhile, fell 30 percent in February. The months ahead could see the same stalling momentum as well.

An argument could be made that the current gas crisis came too soon for electric-drive vehicles. 

Here's why:

1. Playing hard to get: At least nine EV and PHEV models are expected to become available in 2012, but only three—the Nissan Leaf, the Chevy Volt and the Mitsubishi i-MiEV—are currently available for sale. What’s more, the i-MiEV is not yet available nationwide and the Leaf just this month completed its nationwide rollout. The bigger problem is that all three of these cars are only available on a pre-order basis, with common waiting periods of six months or more (despite the apparent over-production of Volts that recently caused General Motors to halt production for five weeks). Since consumer interest in fuel efficiency tends to be urgent when gas prices spike and then weakens when prices retreat, the order-and-wait process may not appeal to many prospective buyers.
    
2. No charge: Even if vehicles were readily available, one key hurdle that won’t be overcome in the near future is the lack of charging stations. There are over 100,000 gas stations in this country, but only 2,600 EV charging stations, of which more than 300 are private. Charging a vehicle only at home at night is insufficient for some consumers’ driving habits; other consumers are simply plagued by range anxiety and do not want to risk being stranded.
    
3. Losing the numbers game: The main obstacle to EV/PHEV adoption is the price difference between these vehicles and their closest gasoline-powered competitors. For example, compared to a Nissan Versa, a Leaf owner would have to hold on to the Leaf for seven years in order to recoup the price difference through fuel cost savings even if gas prices rise to $4 per gallon. Compared to a Chevy Cruze, a Volt owner would need 12 years. But according to a recent Edmunds.com analysis, consumers tend to own their vehicles for just five to six years, on average.
    
4. Meanwhile, on the other side of the tracks: EVs and PHEVs face increasing competition from a growing roster of highly fuel efficient gas-powered vehicles. The combination of a familiar fuel technology, lower prices and greater selection due to a wider range of vehicles could present a compelling argument for many consumers seeking fuel efficiency to purchase one of these vehicles instead of an EV or a PHEV.

What about you? Will rising gas prices lead you to buy, or at least consider, an EV or a PHEV? If so, why are these issues not a deterrent? If not, which of these issues explains your lack of interest? Are there other factors holding you back?

Posted by Lacey Plache, Chief Economist, Edmunds.com

About Lacey:

Lacey Plache is the Chief Economist at Edmunds.com. By training, she is a competition economist and an economic historian, with a Ph.D. from UCLA. She finds it fascinating to analyze the numerous competitive forces at play in the auto industry and to predict emerging trends. And, she thinks it’s a great job perk to go to auto shows and see the latest hot new cars. Lacey spends a significant portion of her time attempting to disprove the notion that economists can neither write nor speak so that the rest of the population can understand what they are saying. When she’s not writing about auto industry economics, she writes poetry in her spare time—usually not about cars or economics. Lacey is an environmentalist when it makes economic sense and is a proud early adopter of the hybrid car and now the plug-in hybrid. Her favorite form of motion is running, followed closely by biking. She also enjoys taking jet planes to beautiful beaches and must take a road trip to the desert every spring. Lacey is delighted to be a guest blogger for Polk and looks forward to lively forum discussions with Polk readers.

You can follow Lacey Plache on Twitter @AutoEconomist.

Everyone's favorite social network, Facebook, is looking to diversify revenue streams. As Facebook has been more recently known to do, they're trying to be prudent around their strategy by assessing the amount of ads they can serve and limit user dissonance. It's a difficult balance because Facebook has never served mobile ads, until recently. Also, according to the Vancouver Sun, customers aren't particularly keen to mobile advertising messages on their social networks. Serving ads into this market will allow Facebook to live up to that $100 Billion valuation some are expecting for their impending IPO, though. Thus, it will happen.

Going through the numbers, it seems that the automotive industry can help.

First, we should review what type of scale mobile advertisers have with "likes" since they equal ads. A "like" means that the person who clicked it and their friends will see ads from that company. There is definitely room for growth. While reviewing Ignite Social Media's list of top fan pages on the network, I found that only one automotive brand ranked in the top 50 - BMW with nearly 6.7 million fans as of November 2011. I don't see this as a negative, but rather an opportunity for OEMs to utilize data to bolster these numbers.

Obviously, the owner to fan ratio is further from 1:1 than some of the other top products. Why is that? Typically, auto lags in new technology and marketing acceptance, but represents one of the largest ad categories in every channel. Social, being nascent, isn't necessarily wrought with the empirical evidence that loosens budgets. However, if Facebook is looking to sell mobile ads, then the opportunity could be vast.

Mobile video, according to the Guardian, is expected to grow by 117%, and auto ads lend very well to mobile video. Given that more of the public is watching video, especially via mobile would lead to an assumption that mobile video ads are probably going to be among the least intrusive in the Facebook platform. This segues us to the opportunity. If automakers are inputting mobile ads into their mobile social marketing mix, then they stand a chance to be able to stay below the annoyance threshold by giving consumers the format they're most willing to click and engage with. Thus, leading to fan growth and further opportunities to engage.

This could boost ad revenue for Facebook, fans numbers for automakers and mobile video views for the industry. As Facebook is going through the growing pains of managing mobile ad volume, maybe the automotive industry can be of assistance by finding likely and current fans, using data, and serving ads via the proper medium of video. 

What do you think about the opportunity for automotive marketers on Facebook's mobile site and applications?

Posted by Therran Oliphant, Product Marketing Manager, Polk (03.19.2012)

On Friday, March 9, I had the pleasure of joining executives from across Michigan and a few from as far as Ohio at the quarterly Cornerstone Schools partner morning event in Detroit. Cornerstone Schools is a model "higher learning incubator" in the city of Detroit where over 500 well-dressed young ladies and men in Pre-Kindergarten through 10th grade learn the skills they need to become successful, contributing adults and possibly the next automotive engineer, designer, purchasing executive, entrepreneur, doctor, lawyer or a number of other rewarding careers.

From the moment I walked into the building located on Nevada street on Detroit's east side, I was impressed by all of the positive energy from administrators, teachers, staff, young students (elementary age), older students (high school age) and my fellow sponsors / supporters from various industries including automotive. Part of the day included being paired up with a student, joining them in class and attending the school's science fair. I was blessed to be paired up with a sixth grader named, George whom I could easily see growing up to become the next electric vehicle leader for an OEM or the head of a battery producer like the A123 company that creates batteries for the Chevrolet Volt.

George's science project assessed four different "C" batteries from different brands with varying price points. George's hypothesis was the more expensive Duracell brand would last longer than its competitors. George's second place project did not support his hypothesis as he found the less expensive CVS brand to last twice as long as Duracell for half the price. With the increased investment in electric vehicle technology, if George and his peers continue to stay passionate about the subject of science, batteries and electricity with a focus on best value for least cost, I could see him being a highly recruited engineer by the auto industry upon his college graduation in 10 years.

Ed Peper, Jr., who serves as an executive with General Motors was also in attendance and had a similar experience with his young mentee, Bunia. Bunia's project compared the cleaning power of two popular toothpaste brands Colgate and Crest. As a result of Bunia's project, Ed and I found out that Crest actually performs better than Colgate.

As I've stated many times before, I'm glad to work for an organization like Polk that supports the local community within which we work and reside and our support of Cornerstone via scholarships, mentoring time and as an Intern Sponsor for Cornerstone's new Leadership & Business High School is just another example of this support. I'm also proud to see one or more of our automotive partners taking the same approach. The young people in Detroit and across the country will be necessary to lead all current and future industries including automotive.

My hope is for the media to focus on all of the positive things happening like Cornerstone that are going on in and around major cities like Detroit. The proposed media coverage would encourage more support for positive stories and create a brighter outlook for the future of automotive and other industries.

I would love to hear any thoughts you have on the topic of giving back to the community by automotive companies or any industry with a focus on America’s youth.

L to R:  George, Danaejha, Erika Koski (Polk) and Nia

L to R:  Ed Peper, Jr. (General Motors), Bunia, George and Marc Bland (Polk)

Posted by Marc Bland, Head of Diversity & Inclusion, Polk (03.16.2012)

From 2006 through 2009, large vehicles as a percentage of total new vehicle registrations declined 10 percentage points to 20%, though this proportion has stayed constant in the last two years. Going forward, most automotive forecasts predict that large vehicles will retreat even further as gas prices rise and OEMs launch smaller, more fuel efficient vehicles (including hybrids and electric vehicles) to meet the upcoming CAFÉ standards.

Looking at the nine non-luxury mainstream makes, all of them have followed the industry pattern and shifted their product portfolios toward midsize and compact vehicles. But while the three domestic makes have indeed moved toward smaller vehicles, their overall mixes remain much more skewed to larger vehicles than the mixes of their overseas-based competitors. Between 40 and 50 percent of all Chevrolets, Fords and Dodges registered in 2011 were large vehicles. In contrast, none of the other mainstream makes had a mix of large vehicles above 11%. Three of these makes – Honda, Kia and Volkswagen – do not sell any large vehicles at all, and a fourth, Hyundai, is barely participating with a .3% mix.

 

This landscape may give the impression that the Asians are better positioned than the domestics should gas prices continue to rise or suddenly jump due to a traumatic global event. It’s not that simple. While the Asians indeed are focused solely on midsize and small vehicles, the domestics currently offer small, midsize AND large vehicles. The domestics dominate the large pickup and SUV segments, which offer high volumes and profits, something any OEM would covet. (Even though these segments may continue to decline, they will most likely continue to exist because their functionality is not provided by any other size/body type combination.) Yet the domestics now also market competitive small vehicles, though perhaps not with the same range of models and body types as some of their Asian competitors. But recently-introduced domestic small cars such as the Ford Focus, Chevrolet Sonic, Chevrolet Cruze (and upcoming Dodge Dart) are competitive with their Asian rivals, something that could not be said of domestic small cars as recently as 10 years ago. Thus the domestics have the luxury of participating in the small vehicle segments while also reaping major per vehicle profits on their large trucks, a luxury the Asians do not have.

All the mainstream makes now offer small cars and crossovers which will be increasingly in favor as gas prices rise. The Asians may have a slight advantage in the compact and subcompact categories because they tend to have a broader array of products. But the domestics have a financial advantage in that their large pickups and SUVs, even with declining segment shares, will provide much-needed profits that their competitors can’t obtain.

Lastly, definitions of the words “large,” “midsize,” and “compact” are evolving. What is a large pickup today probably will not be on the market five to seven years from now; rather, “large” will be used to describe an F-Series or Silverado that is in fact much smaller than today’s light pickup, and today would probably be labeled “midsize.”

Posted by Tom Libby, Lead Analyst, North American Forecasting, Polk (03.13.2012)