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Welcome to the Wonderful World of Incentives
A rule of thumb in the retail car business is this: if you have a good enough idea, and that idea translates into sales and market share, you can be assured that competitors will probably follow suit.
I am referring to the employee incentive program introduced by General Motors in the US. Last month, General Motors rolled out employee discounts to the general public across America and, according to J.D. Power & Associates, the program was so successful that it boosted sales by 41 per cent. In an industry where a few percentage points is measured in hundreds of thousands of units sold, this is an incredible achievement.
With that kind of success, it was only a matter of time before the program caught on in Canada. As expected, other carmakers such as Ford, DaimlerChrysler and General Motors have recently announced employee pricing here, and industry experts expect that it will have a positive impact on sales for these companies.
Welcome to the wonderful world of car buying incentives. Whether it?s low-interest financing, gasoline credits, no-charge air conditioning or cash rebates, incentives are a way of life in our industry. Most domestic, European and Asian automakers offer excellent car-buying programs; although philosophy and attitude towards branding differ from company to company.
Why is employee pricing such news? This type of incentive has never been offered to the public before. Carmakers have policies in place in which they offer special incentives for their employees to purchase new cars. These incentives are now being extended to the public because carmakers are always looking for new and innovative methods to market vehicles and to get a leg up on the competition. Competition is fierce in the retail car market.
In previous decades, automakers competed on quality, design, technology and performance features. While these factors do influence buying decisions, most automakers today have achieved excellence in most of these areas, which leaves ?price? as one of the last selling feature in wooing customers. This creates a need for aggressive marketing strategies.
There are many approaches to moving product, all based on supply and demand and competition. One example is the ?value proposition,? where carmakers equip vehicles well and price them so that purchasers feel that they are getting a good deal. Then there is the ?interest rates/cash rebates,? where low financing and/or cash rebates are expected. Another approach is the ?leasing approach? with attractive monthly payments and residual supports. All in all, these selling models work well. However, you must balance your desire for a particular product with your financial means.
How long will this incentive mania last? It?s hard to say. Zero percent financing, introduced after 9/11, was expected to last just a few months. Almost four years later, it?s still going strong.
So, what?s next? Well, automakers will continue to seek out unique and creative ways to attract buyers. Take, for instance, Volkswagen?s recent auto insurance incentive program in the US. Over a three-month period, Volkswagen paid one year?s worth of insurance coverage on select new vehicles, and the company reported a 23 percent rise in year-to-year sales. The insurance package incentive influenced two thirds of the buyers who purchased new vehicles. This was a pilot program which could become a reality.
Why are incentive programs typically enhanced in early summer? Vehicle production for the next model year usually begins in July and August, and any remaining inventory must be sold to make way for new vehicles coming off the assembly lines. Manufacturers have commitments to their parts suppliers, to their employees and to their unions, which must be met. From time to time, supply exceeds demand, forcing automakers to devise creative measures in which to move excess vehicle inventory.
The other night while at a function, someone asked me: ?Are incentives in general just a gimmick?? My answer was, ?No, absolutely not.? In my 25-plus years in the retail auto business, I have never seen more well-crafted buying programs offered on new cars and trucks, regardless of make or model. My instincts tell me that these generous offers cannot last forever because some of these incentives can add up to thousands of dollars in potential savings to the consumer.
Are there any losers with incentive programs? I don?t think so. Consumers win because they have a wide selection of excellent car-buying programs to choose from. Manufacturers are kept busy and profitable; parts suppliers are kept productive, and our most important business sector, overall, contributes strongly to a healthy Canadian economy.
Why should consumers buy sooner rather than later? Interest rates are at an all-time low. Unemployment levels haven?t been this low since the late 1970s. Consumer confidence is high. Our minority government seems stable. Automakers? marketing incentives are extremely generous.
Personally, I think that incentives from all carmakers are great from a customer perspective. As a buyer, if you?re sitting on the fence about a new vehicle, there should be nothing holding you back. If manufacturers are in a position to offer these great incentives, get out there and take them up on their offers.
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Paul Stern is President of the Toronto Automobile Dealers Association and is a new-car dealer in Toronto. E-mail comments to president@tada.ca
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