J.D. Power Expert Outlines Key Forces behind U.S. Sales Growth

Deirdre Borrego presents auto industry outlook at J.D. Power Automotive Marketing Roundtable “The U.S. auto industry has enjoyed remarkable revenue growth this year,” Deirdre Borrego, J.D. Power vice president of client services, said during a presentation at the October J.D. Power Automotive Marketing Roundtable (AMR) in Las Vegas, NV. “From a consumer standpoint,” she said, “there are specific market forces that have kept sales strong and transaction prices high.” Borrego pointed to four key drivers:

• Long-term loans are a key enabler. Nearly one in three 2013 sales to date was facilitated by a loan of 72 months or longer. Extended terms, combined with. . .

• . . . Low interest rates have allowed consumers to buy a richer mix of vehicles while keeping their monthly payment within their household budget.

• Strong residuals enable manufacturers to offer attractive leases to consumers, again with desirable monthly payments.

• Tight used-vehicle supply is another key factor. The average price of a used vehicle increased by roughly $3,000 since 2008 to reach $18,800 so far this year. This drives stronger in-equity positions for existing owners, improving purchasing power or removing barriers to entry. Continue reading ›

Reliability and Price are Key Priorities for Mexico’s New-Vehicle Owners

Gerardo Gomez

New-vehicle owners in Mexico say the most important reasons for choosing their car or truck are a vehicle’s durability and reliability and its purchase price, according to our 2013 Mexico Vehicle Ownership Satisfaction Study (VOSS). Fuel efficiency is the third most important, according to the study.

The 2013 Mexico VOSS, which is based on responses from 5,497 vehicle owners in major auto markets throughout Mexico, finds that consumers want extra assurance that their vehicle will be dependable. More than one-half (60%) of owners say their 2011 and 2012-model year vehicles are covered by the original manufacturer’s warranty. Another 16% of owners say their vehicle is covered under an extended warranty, and 9% say their vehicle is covered under a pre-paid service agreement.

Price is particularly important to Mexico’s vehicle owners since, on average, the purchase price of a new vehicle may be equal to 1-2 years of disposable household income. In addition, the average annual price of insurance may be high for many consumers in Mexico—sometimes it may be equal to as much as a month’s salary. Continue reading ›

Ownership Costs Most Important in 2013 Brazil VOSS

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Jon Sederstrom

Overall vehicle ownership satisfaction in Brazil averages 733 (on a 1,000-point scale), according to our 2013 Brazil Vehicle Ownership Satisfaction Study (VOSS), and ownership cost satisfaction—which accounts for the highest importance weight in the study’s overall satisfaction index—receives the lowest average score among the four measures that are examined.

The 2013 study, based on evaluations of 8,387 online interviews with new-vehicle owners in the country after 12 to 36 months of ownership, evaluates four measures of satisfaction across the new-vehicle ownership experience. In order of importance, these measures are: ownership costs (42%); service satisfaction (23%); vehicle appeal (19%); and vehicle quality/reliability (16%).

Among all countries in which J.D. Power publishes the Vehicle Ownership Satisfaction Study, owners in Brazil place the most importance on the cost of owning a vehicle. In part, this is due to spending a larger percentage of their income on vehicle service and repairs, fuel, taxes, and insurance. Continue reading ›

Multi-Channel Interaction Gains Ground for Auto Insurance Customers in Canada

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Jeremy Bowler

Mainstream adoption of technology is making a big difference in the way auto insurance customers in Canada interact with their insurance provider, according to our 2013 Canadian Auto Insurance Satisfaction Study, which is based on responses from 11,257 auto insurance policyholders in Canada.

An increasing number of consumers are going to the Web for their first point of contact to gather information, according to our 2013 study. This year, the percentage of customers using non-traditional channels, such as an auto insurance provider’s website, has increased by as much as 7 percentage points from 2012, and now accounts for as much as one-third of all customer interactions, depending on the particular region.

Among customers who contact their insurance company, nearly one-half (49%)—including those of agent/broker-based insurers (43%) and direct insurers (57%)—use multiple channels to contact their provider. Continue reading ›

Fuel Efficiency Features are Most Popular New Technologies

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Mike VanNieuwkuyk

Although U.S. drivers may see a drop in the average price of gas at the pump in the next few months vs. the same time frame a year ago*, new-vehicle owners have fuel economy on their minds when it comes to their interest in advanced features and emerging technologies to consider when they purchase their next vehicle, according to our 2013 U.S. Automotive Emerging Technologies Study.

Two of 22 features evaluated in the study with the highest percentages of vehicle owners who “definitely would” and “probably would” want a certain feature enhance fuel economy. Higher interest among owners this year may be because these technologies are already available in many non-premium vehicles; they are lower-priced than some technologies and owners are already familiar with them.

Energy Feature: Highest Interest among 22 Emerging Technologies

The fuel economy indicator feature has the highest overall interest before a suggested price is provided (79%) and also after an estimated market price of $50 is introduced (72%). In addition, the percentage of vehicle owners who “definitely would” want the feature in their next vehicle actually edges up from 28% to 30% after a price is revealed. Also, as expected, non-premium brand vehicle owners are even more interested in this feature than are premium vehicle owners. Continue reading ›

Mary Ann Keller Says the Franchise System is Here to Stay

Mary Ann Keller speaks about the franchise system at the New York Automotive ForumThe franchise system remains strong and in place in most states despite attempts over the years to dismantle these laws with start-ups of factory-owned stores to change the model, according to Mary Ann Keller, independent automotive consultant and auto business writer and former investment analyst and director on several auto company and dealership boards. Keller presented her thoughts about the franchise system in the U.S. market to auto industry members during the New York Automotive Forum that was co-sponsored by J.D. Power and Associates and the National Automotive Dealership Association (NADA).

Keller’s speech is excerpted:

A Little History about Corporations Trying to Change the Franchise Network

One myth promulgated in the 1990s has now resurfaced. Tesla wants to open factory stores to save money by reducing distribution expenses, which they estimate to be 30% of total expense—that percentage is nonsense.

Remember Ford’s ill-fated Auto Collection experiment? It proved conclusively as told to me by a retired Ford executive last week that corporate guys are not risk takers and they lack the entrepreneurial spirit that is required to manage dealerships.

Big corporations control from the top. Selling cars requires street smarts and adapting to local market conditions and competition. After a couple of years, Ford ended its experiment after its market share losses were too painful and there was mounting evidence that factory stores did not deliver customer satisfaction or reduce costs. Continue reading ›

Dealers Outline Financial Hurdles and Challenges of New Technology

NY Auto Forum Dealer Paneli-CQFWkSW-SThree auto retailer owner/operators discussed opportunities and challenges that lie ahead for dealerships, during a one-day New York Automotive Forum jointly sponsored by J.D. Power and Associates and the National Automobile Dealers Association (NADA) that was held before the New York International Auto Show (March 29 – April 7). The following post features dealer views on the financial side of the business for dealers in the current economic environment and discusses some challenges retailers face such as selling and explaining technology and sophisticated electronics in new vehicles.

Moderator: Glenn Mercer, Independent Consultant

Panelists:

Earl Hesterberg, President and Chief Executive Officer, Group 1 Automotive, Houston, TX; the fourth-largest public dealership group in the U.S., U.K. and Brazil (142 dealerships)

Jon Lancaster, Retired Toyota/Lexus Dealer, Madison, WI

Wesley (Wes) L. Lutz, Owner, Extreme Chrysler/Dodge/Jeep, Inc., Jackson, MI

Will the Financial Side of the Auto Business Become More of a Challenge?

Glenn: Right now, interest rates are low. At some point they will go up. Do you have a feel for the impact on the dealer body as to how many people might have over-leveraged in terms of facility upgrades or do you think it will be a stressful period when it goes to whatever normal interest rates are?

Earl: The business model of auto retailing is a high leveraged or debt-laden business because you’re financing the inventory. And you are financing a facility through a mortgage or a lease. Sure, there are some dealers who own their land outright. But we’re getting lulled to sleep by these interest rates, which are barely positive. Historically, we paid 6% and 7% for inventory. It will come again. Dealer profitability is somewhat overstated. Right now our flooring rates are low, our facility rates are low, and anybody who is borrowing working capital is also borrowing it at an attractive rate. Everyone knows that can’t go on forever. That will put huge profit pressure on the system some day if rates jump. Continue reading ›