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Sunday, November 29, 2009

Part I: How Cash for Clunkers Impacted 2009 Sales & Advertising to Attract Bargain Shoppers


There are a lot of articles out talking about a resurgence in automotive sales. As a recent LA Times article claims, “U.S. car sales are out of rut.” While there certainly is some very positive momentum that all started with Car Allowance Rebate System (CARS) or more commonly known as “Cash For Clunkers”, Ford posted a pretax third-quarter profit of $357 million and General Motors has improved its market share for four straight months, the market is far from recovery.

All of this talk about improvements in the automotive market has left me wondering what is really going on, since we recently crossed 10% national unemployment and little has changed with economic fundamentals.

Did Cash For Clunkers wake people up and get them interested in car buying? Or was it simply a temporary spike where numbers returned to pre-Clunker sales? Or is something else going. Of course, I’m curious if the sales momentum in late 2009 is advertising or product related or a little of both or not really a momentum at all.

Approach

Most of the analysis done by the media is year-over-year comparisons. But if this year is highly unusual and looking back at the tanking of sales in late 2008 is naturally going to provide what looks like a surge in sales, how can we judge sales performance post Cash for Clunkers?

This analysis looks at 2009 only. I looked at sales through the first six months of 2009 (January-June) and then took an average of sales for those months to obtain an average month in 2009.



The chart looks at percentage of change from a six-month average, against the months where Cash for Clunkers was active and the following two months post the end of the Clunkers offer: September and October.

The data also only looks at non-luxury automotive brands for the companies included in the analysis. Why? The legislation applied only to cars priced below $45,000. Cash for Clunkers had a negative or non-impact on luxury car sales, so I decided to exclude it in this analysis.

One company that may seem odd here is Smart. I only included them because they were running a high profile $99/month Cash for Clunkers promotion. I was curious if it had an impact on sales.

Sales During Cash for Clunkers

Honda, Nissan and Toyota saw the most significant increases in sales in August when Cash for Clunkers was at its peak. Honda had a 90% increase while Nissan increased 89% and Toyota 78% over the 6-month 2009 average.

U.S. brands Ford, General Motors and Chrysler saw decent gains, but almost two-thirds or half the gain of their foreign counterparts. General Motors led with a 60% gain, Ford saw a 45% increase and Chrysler performed the lowest across the major brands with only a 19% improvement; though, many Chrysler dealers were caught without adequate inventories.

Truck sales were one area where American brands did fairly well. “The single most common swap - which occurred more than 8,200 times - involved Ford 150 pickup owners who took advantage of a government rebate to trade their old trucks for new Ford 150s,” according to the Associated Press.

Not surprisingly, Hyundai received a nice bump especially with some low-priced value alternatives for SUV traders with significant sales of the Tucson and Santa Fe. The Elantra, their economy car, doubled sales in August as value seekers sought alternatives to the Honda Civic, Ford Focus and Toyota Corolla which all ran into availability issues.

Smart saw a negative change in July as Cash for Clunkers started, but eventually turned positive, barely, as the program peaked in August. Unfortunately for Smart, their sole product only allows for a driver and one passenger and while the 33/41 mpg fuel-economy at first is appealing, it comes with giving up a lot like interior space and concerns for safety.

The program did what most expected it to do. It increased sales and spurred a lot of interest in new car sales. Who benefited more is really more of a political concern and caused a lot of discussion as it is easy to see the Asian automakers did very well from the program.

Marketing To Clunker Sellers

There were various efforts as automakers tried their best to attract clunker sales. Hyundai was the first out of the gate by offering trades a few weeks before the program officially started, good thing for Hyundai the government accepted the early trades.

Ford Motor Company went with their “Let Ford Recycle Your Ride” site that simplified the process for figuring out if a car qualified and then returned a list of qualifying Ford, Lincoln and Mercury vehicle choices. The site also included manufacturer incentives. All of this made for a very easy understanding of cost in a few simple steps. Ford was the third most popular car brand that consumers visiting this website have requested calls from a local dealer.

Chrysler had by far the easiest, most effective message with its Cash for Clunkers advertising. Their program simply promoted a “Double Cash” incentive where Chrysler matched the government’s incentive. If one qualified for a $4,500 rebate from CARS, Chrysler added another $4,500 to the purchase allowing for a $9,000 incentive! It was very impressive and a clear, effective way to communicate their offer. Unfortunately, Chrysler is suffering very low consideration due to its bankruptcy and ran into supply issues even if customers wanted a vehicle.

Toyota was “proud to be part of the US government’s program.” They promoted their most fuel efficient and most dependable car company in America message in the TV spots for the program.



GM did a Cash for Clunkers qualification experience from their corporate GM.com website. The site was similar to Ford’s where one entered in their car information and it said what GM products were eligible for trade. It however did not include additional manufacturer incentive information.

Smart, as I mentioned earlier, provided a very interesting effort to gain some interest from bargain shoppers. They promoted a $99/month payment when a clunker was traded in for a new Smart car. The low monthly payment was definitely attractive and looked great in large print. Unfortunately, many were quick to chastise the offer as it came with a large $6,667 balloon payment at the end of the 36-month term. The full cost of the deal and the limited appeal of a two-seat car that looks like a death trap next to a Chevy Cobalt, probably caused most buyers to look elsewhere.

It was no surprise to see the small car; fuel-efficient leaders gain the most from the program. Truck sales were strong which definitely helped the home team along with a couple shining examples like the Ford Focus which led the program as the Number 1 buy of shoppers.


To be Continued (Article should be up no later than Dec 2):
Part II: Examining Post Cash for Clunkers
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4 comments:

driving schools in Wrexham said...

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Cars4Charities said...

The goal of cash for clunkers was to help the auto makers, the economy and the environment. It accomplished none of those things. It just stole business from auto repair shops and car donations.

Chris Baccus said...

Cars4Charities: Most of the industry analysis out there says the auto makers were helped by Cash for Clunkers (C4C). The results have shown that about 30% of the sales were people who wouldn't have bought a new car and this 30% increase in buyers certainly helped sales.

Now the thing that is often not reported is who lost to give the automotive makers more sales. Most think that used car dealers lost the most. Auto repair shops definitely lost some repair work; though, there is good news that people are keeping their cars longer from 9.2 to 9.4 years (it used to be about 5-6 years about 10 years ago.) Car donations too took a hit as I'm sure you know.

But to say auto makers didn't benefit is a bit misleading as they certainly did see a very high jump in sales as my data (and others data) shows.

Anyway thank you for reading and commenting. Definitely appreciate your pointing out what is often missed, that many took a hit from Cash for Clunkers.

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