Dealers

I did a brief interview for a public radio program last week and they asked me about people and their ownership patterns of cars and trucks. Specifically, they wanted to know if people were hanging onto their wheels longer and why. Short answer: "Yes."

Americans Continue to Hold Onto Vehicles Longer

 

The trend we've seen over the last eight years is pretty stark. As new and used vehicle sales in the U.S. have taken a hit in recent years, the chances that we'll hold onto our vehicle for longer periods of time has definitely risen. In late 2001, the average number of months we Americans held onto a new car or truck was 34.2 months. As of September 2009, it was over 60 months. Same pattern, but at different levels, apply for used vehicles, too. Why? How?

1. The economy helped this, but it's not the only reason. I won't elaborate on the old news of what a recession does to individual spending in the auto market. But that's not the only contributor motivating you and I to hold onto our vehicles longer.
2. Financing. Leasing options were more difficult to come by in 2009, particularly as Chrysler Finance and GMAC withdrew from this type of activity. That hurts the "churn" of someone being able to move from a temporary owned vehicle into another one. Plus, there are more deals out there where you can finance for longer term lengths. You've heard of 72 month car loans? They're growing. That'll add to the average ownership length. I found an article from LendingTree dated 2007 citing the beginning of this pattern.
3. Warranties and extended warranties. Automakers are covering their powertrains for longer periods of time and bumper to bumper warranties are also growing. Go talk to a dealer and they'll be happy to sell you an extended warranty as well. Add another factor to my motivation to hang on to 'ol Betsy.
4. Vehicle durability is rising. While perceived durability and reliability may be an issue for some brands, consumer research shows that more and more brands are on par with one another regarding their overall product quality ratings. That is a systematic factor allowing you and I to deal with the same set of wheels for a longer period of time.

The trend bodes well for the automotive aftermarket. (Repair business is good - have you checked out AutoZone's stock lately?) It does suppress the annual sales rate for new sales, but if you are a franchised dealer, can you think of a better reason to have for building a customer retention game plan for your service business? I can't.

Posted by Lonnie Miller, Vice President, Marketing & Industry Analysis, Polk

• New BER is anticipated in June for service but for sales there will be a transition time until 2013. In my opinion, we must not separate regulations for new vehicle sales and aftersales business. I have outlined how important integrated sales and service functions are for both dealers and manufacturers – Vertical BER does not help this way.
• Vertical BER allows brand exclusivity contracts for up to a 5 year contract period, while automotive BER does not. Multi-brand dealerships are on average underperforming, therefore I have no doubt that manufacturers will make use of this exclusivity option. For many multi-franchise businesses this could mean that recent investments will not pay for themselves.
• And finally a legal issue: the principle of legal certainty is not given for those manufacturers and/or dealers which exceed 30% market share.

What were the top 10 questions from the OEM and OES delegates attending the Polk EuroCar Seminar in the UK on 20 January 2010?

1. If you could only do one thing with respect to marketing in this environment, what would it be or in what area would you focus?
2. You have covered a great deal of ground, what type of marketing has been most effective / impactful?
3. Are there any other challenges that 'keep you awake at night'?
4. Can you share with us where or from whom dealer network planning can be most improved?
5. Do you have a view about the demise of block exemption and the impact this will have?
6. Is the decrease in the Japan dealer network an indication of the direction European dealer networks are going?
7. With regard to CO2 emissions, hybrids and zero emission vehicles, do you have any insight into vehicle whole life costs?
8. Is the development of fuel efficient vehicles dependant on the oil price going to $600 a barrel?
9. What is the difference between plug-in hybrids, pure full hybrids and mild hybrids?
10. Do you have any evidence that customers are driving shorter distances as a result of economic conditions?

These questions are an indication of the themes foremost in delegate's minds. Watch the blog for answers to these questions.

Posted by Marcus Richardson, PolkConnect Programme Manager, Polk's Europe Operations (01.21.2010)

There has been much recent news and comment with respect to Europe and the sales environment looking ahead. We know from our own experience that the introduction of scrappage incentives can have positive influence whilst in effect, but can also have negative impacts on future vehicle sales. Further, our own analysis has identified unforeseen side effects relative to these programmes with reductions in loyalty rates. Once these programmes ended the loyalty rates returned to normal – demonstrating just how sensitive repeat buyers can be to these types of programmes.

With scrappage programmes coming to an end in Europe, and market-specific influences such as the VAT increase in the UK – it begs the question as to what we can expect in the years ahead.

We will be reviewing our most recent global automotive forecasts, with a detailed view on European Car Demand at a Polk EuroCar Seminar in the UK upcoming on 20 January 2010. For those attending, we look forward to reviewing these forecasts with you, and for those who cannot attend – we hope you will follow Polk’s Forecasting Dashboards or engage with us directly.

The current and projected sales trends have caused many vehicle manufacturers and dealers to increase their focus and attention on customer retention and related programmes. Customer loyalty and optimal aftersales programmes drive positive customer behaviours, and ultimately dealer and manufacturer profitability – key in the difficult sales environment. We will explore some of the best practices we have seen at the seminar, including such areas as predictive targeting and multi-channel integrated communications. Aftersales and service matter, and there are opportunities to succeed and drive results.

And whilst there is no doubting the impact of customer loyalty and retention, no brand can excel in these times without converting the highest percentage of active prospects. There are proven approaches to prioritising focus that generate demonstrable results in increasing conversion rates – and particularly with respect to internet leads. We will discuss our experience in this area at the seminar, and the broader effects the internet and social media are having on the industry.

These are indeed interesting times, but there remain opportunities for the taking.

Posted by Norm Marks, Vice President & Managing Director, Northern Europe, Polk (01.13.2010)

My major take-away from last night's World Congress presentation was the sharp role reversal between guest speakers Yoshimi Inaba, President and COO of Toyota Motor North America, Inc., and Mark Reuss, President of GM North America.

Mr. Inaba spoke first about Toyota's recent successes and challenges. He calmly and confidently highlighted their current and future products, large R & D investment and employee charitable volunteer activities. The audience was left with an impression of a bright future for Toyota in North America.

Mr. Reuss then took the podium and explained the sense of urgency and renewed customer focus at GM. He noted the irony that the same government once concerned about GM controlling too much of the U.S. automotive market, now controls GM. Mr. Reuss covered current and future product and outlined the recovery steps already in place at GM.

It was interesting that GM, who once enjoyed over 50% of the U.S. market, is now behaving like a new entrant OEM by actions such as encouraging engineers to drive parts to stranded customers and having its president interface with the public via Facebook. Through various reasons such as insular management, quality issues and complacent dealers, GM basically handed their market share dominance to the imports over the years.

I was impressed with the passion and commitment of Mr. Reuss, but can't help but wonder if it's too little, too late for GM. They have some great new products and the new, customer focused attitude is refreshing; but will the North American consumer be drawn from their imports back into Chevy, Buick, Cadillac or GMC vehicles going forward? As you ponder that question, consider the fact that of the 16 Polk Automotive Loyalty Awards presented last night, import OEMs captured 13 categories, Ford 2, Chrysler 1 and General Motors 0.

Posted by James Dimond, Vice President of Global Network Planning, Polk (01.13.2010)

For years, auto companies have worked hard to be relevant to their customers. For example, OEM marketers chase the "youth market." Why? It plants the seed for future buyers; it gives auto designers insight into cool and popular trends. Plus, youth are very mobile and socially connected, which helps spread word-of-mouth about products they endorse to each other, to name just a few reasons. I suppose this is why some of the auto brands you and I read about hook up with popular video games - to connect the same audience to two product sets: autos and entertainment. Both business categories have the same basic goal: sell more stuff.

So this got me thinking about what auto companies could learn from the video game moguls of the planet. Certainly something can be learned from companies like Activision, which sold half a billion units of their Modern Warfare 2 game in its first week when it was released this October. While $60 a unit for this game is a big price gap compared to the price of a new vehicle, both the video game and auto sectors would like to build hype, interest, enthusiasm, heck, simply raw adrenaline, when their new product hits the stores.

Some tips to consider:

Make the Purchase INSTANTLY Gratifying
Here's reality:  If I buy a game, I'm back on my couch in less than an hour flying, driving, shooting, whatever with my new fantasy. Can OEMs and dealers make something similar happen more often? Volkswagen's "Sign Then Drive" event is a nice attempt at this. Their ads depict wanna-be owners of a new VW simply signing a sheet of paper and zipping off to a fun, new experience. There's something to be said for a speedy delivery.

Nostalgia is a Powerful Pill
One trick to being relevant is playing on the psychology of nostalgia. How many 40+ year olds are out there who melt when they are able to fly a Star Wars Tie Fighter on their 42" television? These are the same folks who saw the first Star Wars when it released in 1977. The lion "roar" of that speedy ship flying across the big screen is now in their own living room blasting away rebels. I'm sure Dodge, Ford and Chevrolet brand folks play on this same tenet when they strive to get grown-ups jazzed about the Charger, Mustang and Camaro. But these iconic cars are an exception and most models you and I can buy don't do much to connect a past experience to the new one. They should.

Tease, Tease, Tease...and Don't Let the Competition Make You Hide
Video game companies promote forthcoming titles very effectively. And they don't worry if the competition sees their stuff. There are entire sites dedicated to showcasing upcoming game releases. But auto companies pay top dollar to mask their product, so most people don't see their new release in live form (which puts several freelance photographers in business to catch a peek at a new model when it's buzzing around for a test drive). The end-buyers should see and feel more of what's coming in the product. And I don't believe car review magazines do the job compared to what we can see online.

Note: While they are not a gaming company, Apple's strategy of being morgue-like quiet with any new releases plays to their benefit. But their cult-like following wants to be surprised at the last minute because most of what Apple puts out there tends to get rave reviews for design, simplicity and integration, so it's a satisfying result. Yet even so, Apple does play off the tech-rumor mill which builds hype leading up to the unveiling of the iWhatever. Most auto companies don't have that intense of a rabid fan-base. Perhaps more for another discussion.

So if you had the reins to promote and deliver cars and trucks, what would you do? "Game on!"

Posted by Lonnie Miller, Director of Industry Analysis, Polk (12.22.2009)

With the market tsunamis of 2008 and 2009, dealers and OEMs who have weathered the storm are viewing their business and markets differently than the earlier "roaring 2000s."

When new vehicle sales shrink from 17 million new units to 10.5 million, the overall cost structure of the retail channel and consumer spending compresses at the same rate. Dealerships, agencies, lead providers and CRM companies must adjust their automotive marketing efforts and budgets to address the new volumes of new and used vehicle sales, parts & service and Finance & Insurance penetration. The pure numbers from a customer traffic and transaction point are stressful, and the resources and data used in the past will not result in the same level of sales renewals and fixed operations retention.

So, how do dealers and marketers acquire new customers at a cost which is acceptable to their P&L requirements? They use Budget Prospecting to acquire new customers from the pool of orphan owners, first-time buyers, non-traditional loyalists and social network influencers.

Having the opportunity to attend conferences like Driving Sales and J.D. Power has provided me with a number of insights into the dynamics of our new retail environment and how to transition to the dynamics of budget prospecting.

Digital marketing, media spread and prospect targeting are now sciences which take constant feeding and balancing for customer retention. The constantly changing population base requires retailing efforts to focus on a combination of targeting points to effectively reach new prospects with pertinent and valuable offers, advice, community support and service to earn, retain and grow a business relationship through social networking.

To survive as one of 15,000 franchised dealers, the discipline of building prospects outside of your DMS name file and CRM marketing database requires significant effort for capturing the consumers at the bottom of the funnel. Also critical are consumers in the "lost zone" of orphan owners, first-time buyers and consumers who can be influenced on where to service their vehicles or purchase their next new or used vehicle.

All of this must be done with a cost per acquisition that meets the financial and ROI requirements of dealers, agencies and OEMs. Those who balance lead acquisition with "budget prospecting" will achieve long term growth strategies for their market and brand(s). They will continue to adapt and adjust to this changing and challenging market by growing sales, profit and market share. All of these "scorecard" evaluation points are keys to the health and ongoing transition and growth of the automotive retail channel.

Posted by Brad Korner, Director - Client Sales & Service, Automotive Retail Solutions, Polk (12.3.2009)

As I was reading my colleague Mark Pauze's piece on Asian Americans and the U.S Auto Market, the table which listed the Asian OEMs, got my attention. It seemed the Asian Americans were heavily into Asian makes. But how do they compare with the rest of the population?

So I used PolkInsight to pull some numbers:
The average distribution of new registrations in the U.S. is something like 50% Asian, 40% Domestic, and 10% European makes. Both African American households, and Eastern/Western European households in the U.S. fall in line with that average.

The second group based on the percentage distribution, which includes Eurasians, Hispanic, and Pacific Islanders had an average distribution of 60% Asian, 25% Domestic, and 15% European makes.

Finally, the Asians lead a group of their own with 75% Asian, 10% Domestic, and 15% European makes. The interesting part isn't only that Asian Americans buy overwhelmingly Asian makes, but that they are the only group along with Middle Eastern American households where Domestic makes gets the 3rd place in purchase preference.

What does this all mean?

• A dealer candidate may want to think twice before opening a Ford or GM dealer in a prominently Asian American neighborhood
• In terms of lead management, a lead coming to an Asian OEM from an Asian American household might have to be scored a lot higher than any other ethnicity in terms of possibility of a sale

Interesting stuff!

*Data Source: PolkInsight, new retail registrations CYTD August 2009
Percentages are generously rounded and approximate

Posted by Cenk Hepaktan, Global Product Strategist, Polk (11.13.2009)

There's still a lot of press regarding automotive industry challenges like the recent GM and Chrysler bankruptcies and related dealer closings, but has anyone looked at the domestic  OEM’s market share lately? I have and the industry trend is very sobering – GM, Ford and Chrysler combined retail market share has dropped over 10 percentage points during the last five years and is currently hovering around 40%. Yes, almost two out of every three vehicles currently purchased at retail in the U.S. is an import. I know that the definition of an import is fuzzy at best with Hondas built in Ohio and Subarus built in Indiana; but for the purposes of this discussion, let’s consider anything not made and/or distributed by the Detroit Three an import. We’ll also count future Fiats and Alfas as domestics since they will be distributed through Chrysler dealers.

My crystal ball is as cloudy as anyone else's, but I don’t see this sharp downward trend reversing in the near term. With the impending demise of Saturn and Pontiac, the reduction in GM and Chrysler dealerships and the heightened import competition (particularly Hyundai, Kia and VW), Detroit Three share can’t help but continue to slide even further. Add to the mix a newly refocused Toyota and vehicles from China and India on the horizon, and one can only wonder where the domestic share will bottom out.

I can say that from R. L. Polk's automotive forecast, we expect the Detroit Three total market share (including fleet units) to stabilize around 40% over the next five years. Even with Ford's recent uptick in share, I predict the Detroit Three to account for only 25% to 30% of the retail U.S. market within the next five years. What's your forecast, and what, if anything, can the Detroit Three do to become the Big Three again?

Posted by James Dimond, Vice President of Global Network Planning, Polk (10.28.2009)

If you're a dealer, here's a tip for you: read the book by Chris Brogan and Julien Smith, "Trust Agents". If you're wondering about improving your company's image and how to influence customers via online methods, you will find it highly useful. This is not just theory-- it's a "meat and potatoes get-stuff-done" book! It's about building a better reputation with your constituents in the context of the web and social media tools.

Am I getting kick-backs on this book? Nope. It just stood out to me after co-presenting last week at the DrivingSales Executive Summit that there is so much auto retailers can do to build better relationships with their customers. Here's a compelling fact: In research done by our firm, U.S. auto brands representing over 52% of all personal sales only saw a combined dealer loyalty rate of 30% in 2008. That means 7 out of 10 owners at a dealership for these top brands went to another store. One area I see that baffles many of us is the lost sales in the service bays among dealers...in a time when owners are holding their vehicles for an average of 9 months longer (comparing the last 6 years). Can you say, "How can I get more parts and service revenue?"

Okay. I'm not trying to be a "Monday Morning Quarterback" but there are really some good digital marketing and social media ideas out there to help retail sales build momentum. Just read the book. You won't be sorry.

Posted by Lonnie Miller, Director of Industry Analysis, Polk (10.22.2009)

Admittedly luck has played a role in my recent service experience but there is no doubt that my story is based on good service from not only the dealer but also the manufacturer.

It all started on Wednesday when my engine light went on and at the time, I thought it was the oil light (look liked an oil icon to me). I have a 2008 Volkswagen Passat and have not had to think about any service issues because the "multi-function trip computer" does it for me. In fact, that message appeared on Thursday morning telling me that I had to service in 1,500 miles or 2 days. Good, I had until Saturday to make the appointment, assuming my dealership was open on Saturday, which I later found out it was not.

On Friday, about a mile from my home, my engine hesitated for a nanosecond. Fortunately I was not in a precarious position with my car at the time. Confused I continued on my drive home. I pulled into my driveway and immediately the car stalled (as if it had given all it could to get back home). I started it again but after accelerating, it stalled again. After a few attempts, it refused to start. My car broke down in my driveway - what luck! I reached into the glove compartment to have a look at the manual and I noticed a brochure from VW showing that when I purchased the vehicle I received four years of free roadside service. I barely remembered this service but was happy to call the VW toll-free number on the spot. Relatively quickly I was connected to an agent who took my information and said a tow truck would be there in 45 minutes. I went into the house and within 5 minutes I received an automated confirmation call that a tow truck would be there. After only 15 minutes a tow truck showed up in my driveway. Barely after he departed my house I received another automated phone call asking me to confirm if he had been there or not. Talk about efficiency!

As requested by VW, I notified the dealership that the vehicle was on the way. They said they would look at it immediately and if they could not fix it right away they would provide me with a loaner vehicle free of charge. I received a phone call from them a few hours later and they had identified a problem with a fuel sensor. They could repair it that day at no charge and I could pick it up at my convenience (and after dealership hours). Since I was up for an oil change and tire rotation (remember "service in 2 days"), I had them do that as well. So everything was taken care of with minimal inconvenience and time invested on my part. I never even saw the Service Manager. Now that is service from both the dealer and the OEM!

And one final note. Talk about global. When I lived in Germany and had a VW there as well, I had a service incident. Just as VW contacted me regarding my service visit here within a couple days, they did the same when I had my service incident in Germany. VW not only closely monitors the customer's service visits at dealerships globally but they also do it in a timely manner!

Now that’s what I call service.

Posted by Sharon DeGroote, Product Strategist, Polk (10.20.2009)

I attended RVDA last week (Oct 5-9) in Las Vegas. The R. L. Polk & Co seminar which took place on Tuesday, October 5th, titled, "Reach Your Best RV Prospects" had a great turnout.  Approximately 45-50 dealers showed up, which is up from last year significantly. We had good traffic at the booth as well, lots of leads to follow up with. Dealers are trying to find smart, effective ways to use what marketing dollars they have. The hot topic this year is any type of Internet marketing to generate traffic, boost web presence and ultimately increase sales. This included discussions on custom web events, social media sites, posting inventory on public sites and email marketing. The RV market appears to be preparing for the rebound!

Posted by Jody Doublestein, Account Manager, Business & Insurance, Polk (10.15.09)

Listen-up independent repair facilities! Pontiac, Saturn, Hummer and Oldsmobile brands alone represent 15.2 million vehicles on America's roads today. Combined with the closing of many OEM locations and the consolidation of their networks to meet vehicle sales projections, you should now ask yourself, "Who's going to service and sell parts for all of these vehicles?" There is no question that consumers are keeping their cars for a longer period of time, prompting a greater need to pay for parts and service.

Source: R. L. Polk & Co. Market Study: Consumer Sentiment During Challenging Times, 2009.

I don't know too many people who enjoy reveling in the misery or demise of others. I do know how to recognize an opportunity when I see one, though. It's like this time when I was a junior in high school and the kid in front of me on the basketball team went down with an injury. I got my shot, added value to the team and earned some playing time. Did I enjoy seeing him in pain or losing minutes on the floor just because he got hurt? No, but I did relish the chance and take advantage of the opportunity that was presented me.

There is a bittersweet opportunity available to the automotive aftermarket in the near future. For independent repair facilities, there may be an even greater opportunity because studies suggest there are exorbitant differences in parts and labor costs between franchise dealers and independent repair facilities. This is just the type of play that could keep independent repair facilities ahead of the game.

I heard much lament over Cash for Clunkers stealing some of the volume from the automotive aftermarket. Although those concerns are valid, the future is looking brighter. Even though I don't see fireworks and hotdogs on the horizon, I still feel confident calling it "Independents Day".

Posted by Therran Oliphant, Account Representative, Polk (10.09.2009)

Recently, the importance of customer loyalty in automotive marketing has skyrocketed due to the increased proportion of loyalty sales among total industry sales. Beyond measuring customer loyalty, OEMs and dealers need to understand what drives consumers' decisions to repurchase the same brand. Here at Polk, we attempted to uncover some of the drivers of repurchase intentions through a consumer research study we carried out this past spring.

In this study, we asked consumers who bought a new vehicle during the past three years what the likelihood is that they will repurchase a vehicle of the same brand next time they return to market, based on their ownership experience. We also asked them how satisfied they were with a series of factors pertaining to their purchase and ownership experience that we considered as potential influencers behind their repurchase decision.

These influencing factors were grouped into three major categories:

1. Product (brand affinity, product quality, performance, safety, fuel economy, workmanship, drive quality)
2. Customer relations (sales process, customer communications)
3. Monetary (purchase price, sales incentives, financing, cost of ownership)

Our analytical model revealed that product attributes are the most important drivers. Sales process and customer communications also emerged as highly influential, which reinforces the notion that a positive experience during the sales process has the potential to drive loyalty and also highlights the need for constant communication with customers.

Within the product category, fuel economy is a significant attribute that drives repurchase intention, though it is also directly related to the cost of ownership. Purchase price is perhaps less influential than we expected, although there are other monetary aspects that are important such as incentives, cost of ownership and indirectly, fuel economy. A diagram of the derived importance of repurchase drivers is shown below. More detailed study findings are forthcoming in a paper to be published shortly. Stay tuned.

Posted by Dan Zetu, Analytic Consultant, Polk (10.06.09)

Yet another entry in the book of automotive industry challenges this year...talks with GM's Saturn and the Penske Automotive Group fell through. There have to be some very heart-broken dealers out there right now and it's discouraging to see a hopeful marriage fall apart before the bride and groom chose a date.

But let's speculate on a scenario: What if an OEM such as Toyota or Hyundai took the Saturn brand? What a clever, defensive move that would be. Recall that Saturn was to be GM's "import-killer" when they launched the brand in 1985. But this never blossomed. In fact, past conquest analyses from our company showed that most of the Saturn buyers were mainly from other GM divisions. That's not doing the job.

While the Saturn retail model was refreshing and unique (hassle-free and highly customer-centric...recall their tagline? "A different kind of car company"), the product line got stale and investment in Saturn from GM waffled. However, there have been many people talking about what a great opportunity Saturn represented to give US domestic auto owners a taste of an import experience. I think many domestic "loyalists" would come running if they knew another established and growing import manufacturer took the helm. Particularly one with a strong brand image and talent for growth.

Or...would a Chinese entrant seeking to capitalize on an existing North American retail network want to pick up the tab? Is there something here?

Being in the auto industry, this is tough to watch. I feel for the Saturn retail network and their raised spirits which are likely falling today. Let's hope GM can find ways to nurture current Saturn owners and not erode customer loyalty through this brand elimination. GM put good product on the road with Saturn. Let's hope more can be done.

Posted by Lonnie Miller, Director of Industry Analysis, Polk (10.01.09)