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Incentives blamed for slow car sales

Hefty programs by Big Three hurting auto makers' brand equity, expert says

Wednesday, January 7, 2004

Amid data showing a dramatic decline of automobile sales in December among the Big Three manufacturers in Canada, industry insiders and observers are putting much of the blame on hefty incentives offered to consumers.

"Finally, the long-term impact of all these incentives is starting to take hold," said Richard Cooper, director of the Canadian operations of consulting firm J.D. Power and Associates.

"There's no sense of urgency. Consumers assume they'll be around -- if they're not here today, they'll be back tomorrow. . . . An incentive is supposed to drive people into showrooms to buy a vehicle, but under this scenario, it's lost its effectiveness."

According to data provided by manufacturers on Monday, the Big Three auto makers -- General Motors of Canada Ltd., Ford Motor Co. of Canada Ltd. and DaimlerChrysler Canada Inc. -- watched their unit sales drop 11.2 per cent in 2003, while offshore-based manufacturers posted a 1.1-per-cent gain.

For December, GM Canada's sales dropped 37.4 per cent compared with the same period in 2002, while Ford's fell 24 per cent and DaimlerChrysler's plunged 33.2 per cent.

Both the Canadian and U.S. markets have been hit with a flurry of incentives in recent years from the Big Three, ranging from zero-per-cent financing to large cash-back programs to 24-hour test drives.

Car buyers did take advantage of the programs initially, but now consumers are looking more at quality instead of price, Mr. Cooper argues. He said incentives are hurting the Big Three's "brand equity," which is having a "more subtle" impact, but one that can be "more ominous" for manufacturers.

"The person who's been drawn to Chevrolet has been drawn there because of price. If Chevrolet does not offer the same kind of incentives, then [that person] is going to be looking elsewhere," he said. "It makes it more difficult for a brand like Chevrolet to launch new models. They've got some very attractive new models out there but I think what's happened over the last few years is the equity in the brand has probably suffered."

He added: "They're going to have to rebuild the consumer's confidence in their brand, based on things other than price. They've got a real challenge, they've dug themselves into a hole," referring not only to GM's Chevrolet line but also to Ford and DaimlerChrysler.

Steve Carew, a sales manager at Halifax's O'Reagan Lexus Toyota, agrees."The incentives [among the Big Three] have peaked and their effectiveness has peaked. We expect . . . they won't be as effective in the weeks and months to come," Mr. Carew said.

"People are looking for long-term quality as opposed to a short-term price."

While the Big Three suffered dramatic sales declines in 2003, Toyota Canada Inc. -- which has not been as active in the incentive game as its U.S.-based rivals -- watched its Canadian market share rise last year as consumers were attracted to the quality of its cars rather than sticker prices, analysts have said.

Meanwhile, Doug Leggat, the owner of Burlington, Ont.'s Leggat Pontiac dealership, blames more than just incentives for the drop in sales on his lot.

"Certainly, in this area here, I would think there are a few people that are concerned about their livelihood," he said, noting that a large chunk of the population works in the manufacturing sector.

Carlos Gomes, an economist who follows the auto sector for Bank of Nova Scotia, said earlier this week that many consumers are becoming concerned about what impact the soaring dollar will have on the Canadian economy, particularly the manufacturing sector, which relies heavily on exports and strong foreign currencies. As a result, they're putting off major purchases such as cars.

"Would another $2,000 [off per vehicle] bring any more people in? I don't think so," Mr. Leggat said.

5 Posts
What pisses me off is that they put rebates on the Malibu, what the crap? They haven't even given it a chance before slapping a thousand off. The second I see a rebate on a F-150 or Freestar Ill die, they're selling pretty well. Ive seen like 10 or each around here. And there are 3 04' F-150's in my Zip Code alone, that's good, and one Freestar.

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Originally posted by Mr_Pringle+Jan 15 2004, 06:53 PM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (Mr_Pringle @ Jan 15 2004, 06:53 PM)</td></tr><tr><td id='QUOTE'> <!--QuoteBegin-Dior@Jan 15 2004, 02:55 PM
The second I see a rebate on a F-150 or Freestar Ill die, they're selling pretty well. Ive seen like 10 or each around here.
2,500 on the Freestar-- Article Here [/b][/quote]
Great Pringle!, Now you've killed Dior. And he was so young too.
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