Hyundai-Kia will surge past Honda and Toyota in May, analyst says

High-flying Hyundai-Kia Automotive will outsell Toyota Motor Sales U.S.A. and American Honda Motor Co. in May, according to industry analyst TrueCar.com.

 

TrueCar expects Hyundai-Kia to sell 115,434 units in May, which would be a 43.4 percent increase from May 2010. That would give the Korean group a 10.9 percent market share and make it No. 3 behind Ford Motor Co. and General Motors, according to TrueCar.

TrueCar analyst Jesse Toprak said Hyundai-Kia's momentum and Honda's and Toyota's slow May sales -- dragged down by earthquake-related inventory shortages and low incentives -- contributed to the Koreans' expected No. 3 ranking.

"There have been some real and perceived shortages of Japanese vehicles, and the message to consumers when they look around in the media is 'you might as well not buy something,'" Toprak said. "But the truth is that if Hyundai-Kia didn't have the right type of products at the right time, they wouldn't have been able to capitalize on this opportunity."

TrueCar expects Honda/Acura sales in May to drop 20.7 percent from May 2010 to 92,889 units. Toyota/Lexus/Scion sales are expected to plunge 32.8 percent to 109,416 units.

May's annual selling rate is expected to hit 11.9 million units, up from 11.6 million in May 2010 but down from a 13.2 million rate in April 2011.

Toprak expects inventories for Japanese automakers to continue to be tight in June, especially for fuel-efficient models built only in Japan.

"June is going to be another month of tight inventories, but based on [faster production ramp-ups] that have been announced, starting in late June we should see some of these inventories start to be replenished," Toprak said. "But they won't come back to normal levels until much later in the year."

Higher transaction prices caused by tight stocks also are pushing consumers to wait on the sidelines, Toprak said.

He said: "That whole mechanism of the market going back to normal levels will take months, probably by the fourth quarter, provided that all the production resumption announcements are accurate."

Ryan Beene -Automotive News -- May 25, 2011

Shoppers Spending Less on Consumer Electronics

The average U.S. household spent $1,179 on consumer electronics (CE) products in the past 12 months, down $201 from last year's findings, according to a new study released this week by the Consumer Electronics Association (CEA).

CEA's 13th annual Household CE Ownership and Market Potential Study found that the average adult spent $652 on CE products in the past 12 months, down from $794 the 12 months before.

Women spent, on average, $520 on CE, down $111 from last year's study. Men reported personally spending $793, down $176 from the 12 months before. The average household reports owning 24 discrete CE products, down slightly from 25 devices last year.

"Consumer ownership of most devices has increased despite consumers spending less on CE in the past year," said Brian Markwalter, CEA's research and standards senior VP. "Several factors have led to a decrease in spending, including changes in consumer purchase patterns, product consolidation, decreasing price points and the high unemployment rate."

The study also found that video products continue to be the most-owned CE device. Forty percent of televisions in U.S. households are HDTVs, with LCD TVs the preferred choice. Internet-connected TVs and 3DTVs, both included in the study for the first time this year, are two new products driving video growth. In particular, broadband-enabled TVs are expected to have a quick uptake, with 10 percent of consumers planning to purchase an Internet-connected TV in the next year.

Household penetration for LCD TVs grew the most of any CE device, growing 12 percent year-over-year.

Wireless CE products also gained momentum among U.S. households. Ownership of e-readers doubled to 13 percent over the past 12 months. Additionally, more than one-third of households now own a smartphone and almost one in 10 households own a tablet computer. These products are expected to see increased penetration in the marketplace this year as they were among the top devices consumers intend to purchase, CEA said.

"There are lot of new and innovative wireless technologies attracting consumer interest and excitement," said Markwalter. "The popularity of these devices and other emerging CE products will be a bright spot for the industry moving forward."

The study also showed that households are increasingly streaming video content through their devices.

Subscriptions to movie rental services experienced a 40 percent growth year-over-year. With more than 28 million subscribers, content providers have enabled access to services directly through displays, game consoles and other set-top boxes connected to the Internet. Greater broadband access will continue to increase streaming video subscriptions, the study concluded.

(Source: TWICE, 05/24/11)

Sporting Goods Industry on the Rebound

According to the Sporting Goods Manufacturers Association's State of the Industry Report (2011), the sporting goods business in 2010 showed its largest one-year revenue growth swing in nearly 20 years.

In 2010, U.S. wholesale sales of sporting goods equipment, sports apparel, licensed merchandise, athletic footwear, and fitness equipment totaled $74.2 billion. That was a 3.5 percent increase over 2009, when sales were $71.6 billion. This boost in sales indicates that the sporting goods industry is "on the rebound" since sales in 2009 were 4.3 percent less than they were in 2008.

The main category in the sports products industry is athletic apparel, which increased 4.8 percent to $29.6 billion. The second largest category is sporting goods equipment at $20.4 billion. Athletic footwear sales were $12.6 billion. Sports licensed merchandise sales amounted to $7.3 billion.

Fitness equipment was also strong in 2010 -- up 4.1 percent to $4.3 billion. The treadmill is still the most popular piece of fitness equipment. In athletic footwear, the running shoe remains the category leader. Golf is the largest category under sporting goods equipment, while shirts/tops represent the top selling item under sports apparel.

"The sporting goods industry has strengthened in the last 12-16 months, despite the challenges which have been presented by a number of issues such as the vagaries of the worldwide economy, federal and state legislation, sourcing and production concerns, regulations by sport governing bodies, and counterfeiting," said SGMA President Tom Cove. "Since 60 percent of SGMA member companies say they need more manufacturing capacity and will increase production by nearly 25 percent, chances are good that 2011 will be a strong year, as well. Our survey also indicates that 88 percent of our member companies expect international sales will increase in 2011."

There are a number of factors which are affecting the overall growth and development of the entire sports, fitness, and recreation industry:

Electronic Communication: Manufacturers and retailers are more creative in how they reach the consumer as Twitter, Facebook, Texting, Shutterfly, RueLaLa, and Groupon are some of the ways in which marketing and advertising messages are being transmitted.

Daily Concerns: Throughout the year, the two biggest concerns by manufacturers about the retail sector will be (1) shifting inventory risk to manufacturers and (2) emphasis on product quality.

Focused Expenditures: More than 60 percent of Americans purchased fitness-related services or fitness equipment in 2010.

School Sports Spending Suffers: According to Up2Us, more than $2 billion was cut from school sports budgets in the 2009-2010 school year.

Budgets and Expenses: In 2010, expenses for sponsorships and player endorsements fell while spending on new product development and advertising rose.

Team Spirit Spending: Wholesale sales of sports licensed products and merchandise rose by 5 percent -- from $6.9 billion in 2009 to $7.3 billion in 2010. That increase is due to "pent-up" demand and consumers' desire to be affiliated with a favorite team or sport.

Digital Interaction: Since 2009, three group exercise activities (group cycling, cardio tennis and high-impact aerobics) have experienced double-digit gains in overall participation. This growth has been driven by the "Generation Y" population (ages 11-30) and its philosophy on social networking as a way to communicate and socialize.

PE Pays Off: For today's children, they are more than three times likely to participate in team sports if they have PE classes in school than if they don't have PE in school.

Trends & Tendencies of Sports Participation

In team sports, there is positive news to report. Many traditional endeavors such as outdoor soccer, indoor soccer, tackle football, baseball, basketball, cheerleading, and court volleyball have experienced small degrees of growth in "overall" participation since 2009 -- reversing a recent trend in the other direction -- and "overall" participation in some "niche" team sports activities has showcased dramatic increases since 2009. Rugby is up 50.7 percent, lacrosse is up 37.7 percent, field hockey is up 21.8 percent, and beach volleyball is up 12.3 percent.

World Cup Effect: With no specific marketing program or effort geared at increasing interest in soccer, outdoor soccer participation rose by almost 3 percent in 2010 -- mainly due to the existence of the World Cup in South Africa and TV coverage of the event.

Trendy Teams: Four team sports have had double-digit percentage increases in "core" participation since 2009. They are lacrosse (13+ times/year (up 33.1 percent), rugby (8+ times/year, up 20.3 percent), ultimate frisbee (13+ times/year, up 19.2 percent), and beach volleyball (13+ times/year, up 18.9 percent).

Road Runners: Nearly 50 million Americans are now running and jogging to stay fit -- up 12.6 percent from 2009.

School vs. Travel: The three most popular team sports in high school are basketball, tackle football, and baseball. The three most popular team sports for travel-sport athletes (age 14-19) are soccer, baseball, and basketball.

Electronic Stimulation: Almost 50 percent of U.S. online customers used some type of fitness technology in the past year -- according to a Consumer Electronics Association study.

Fitness Fanatics: The three cities whose residents are considered the "fittest" in the country are Salt Lake City, San Diego and Austin.

(Source: SportsOneSource Media, 05/19/11)

Instead of Buying a Home, Many Americans Opting to Rent

A growing number of Americans can't afford a home or don't want to own one, a trend that's spawning a generation of renters and a rise in apartment construction.

Many of the new renters are former owners who lost homes to foreclosure or bankruptcy. For others who could afford one, a home now feels too costly, too risky or unlikely to appreciate enough to make it a worthwhile investment.

The proportion of U.S. households that own homes is at its lowest point since 1998. When the housing bubble burst four years ago, 31.6 percent of households were renters. Now, it's at 33.6 percent and rising. Since the housing meltdown, nearly 3 million households have become renters. At least 3 million more are expected by 2015, according to census data analyzed by Harvard's Joint Center for Housing Studies and The Associated Press.

All told, nearly 38 million households are renters.

Among the signs of a rising rental market:

-- The pace of apartment construction has surged 115 percent from its October 2009 low. It's still well below a healthy level. But permits for apartments, a gauge of future construction, hit a two-year peak in March. By contrast, permits for single-family homes are on pace for their lowest annual level on records dating to 1960.

-- The number of completed apartments averaged about 250,000 a year before the boom. They fell to 54,000 last year and will probably number around the same this year. But then the number will likely double to about 100,000 in 2012 and hit 250,000 by 2013 or 2014, according to the CoStar Group, a research firm. The lag is due to the time it takes for an apartment building to be completed: an average of 14 months.

-- Demand is driving up rents. The median price of advertised rents rose 4.1 percent between the end of 2009 and the end of 2010, census data shows. Few expect the higher prices to stem the flood of renters, though. One reason: Younger adults don't value homeownership as earlier generations did and many prefer to rent, studies show.

-- Rental housing is giving builders more work just as construction of single-family homes has dried up. Still, that economic lift won't make up for all the single-family houses not being built. Apartments account for only about one-fourth of homes. And renters are outspent roughly 2-to-1 by homeowners, who pay for items from lawn care to remodeling and help drive the economy.

Before the housing bust, mortgage rates were so low it was often cheaper to buy than rent. That was true a decade ago in more than half the 54 biggest metro areas, according to Moody's Analytics. Today, by contrast, it's cheaper to rent in about 72 percent of metro areas.

Consider Mason Hamilton, 26, an energy consultant who rents an apartment with his wife for $1,100 a month in Alexandria, Va., outside Washington. He'd like something bigger. But he says he doesn't plan to buy even though he could afford to.

"My parents always told me, 'You need to buy a place; you need to buy property,'" he says. "But the housing market is insane."

Many younger Americans see owning as risky. It hardly seems the best way to build wealth, especially when prices are falling.

"There's been this idea for years, a part of the American dream, that owning a home improves and strengthens communities," said John McIlwain, a senior fellow at the nonprofit Urban Land Institute. "But what we've learned over the past few years is that many people simply are not ready to own a home."

From the 1940s until 2007, homes appreciated an average of nearly 5 percent a year, adjusted for inflation. In the past four years, the median price of a single-family home has sunk 37 percent, by $57,500, to its lowest since 2002. Yet in some areas, owning is still too expensive for many.

"It's becoming so difficult for most Americans to afford a home, with larger down payments and tighter credit, that it is creating a renter's nation," says Robert Shiller, a Yale economist and co-creator of the Case-Shiller home price index. "The home is no longer an investment; it's a burden."

Homeownership bestows its own financial advantages, of course. Each loan payment builds equity. Loan interest and property taxes provide tax deductions. And in normal housing markets, home values rise over time.

But for now, renting is more attractive. Hamilton, the energy consultant, says his father, a 58-year-old teacher in Richmond, Va., still owes nearly as much on his mortgage as his house is worth.

"He's stuck in that house," Hamilton says. "After telling me to buy for all of those years, he'd love to rent like me."

(Source: The Associated Press, 05/24/11)

Publishers Turn to Digital Business Services to Offset Declining Ad Revenue

Publishers Turn to Digital Business Services to Offset Declining Ad Revenue

News publishers have had to develop a number of new digital capabilities in recent years, such as online advertising, social media, search-engine optimization, email marketing, video production, Web design and mobile app development.

After making those investments, most find their, most find their online sales comparatively meager compared to print ad revenue, which is still declining. In search of other income, some are using their new online skills and staff to provide paid client services.

These companies are finding that as businesses large and small discover the importance of their online presence -- such as developing an effective presence on Facebook or Twitter, or optimizing their sites to appear higher in search results -- demand for those services is booming. Media companies who have developed their own expertise in those areas can fill that need with new business-to-business products.

For example, Conde Nast, whose publications include Glamour and The New Yorker, is launching a marketing services division called "Ideactive." It will offer services such as mobile app development, Web design and social media consulting in an effort to build revenue beyond traditional advertising.

The Ideactive team will have six dedicated staffers, including two new hires, Advertising Age reports, and it will pull in resources from the rest of the company as needed.

The Ad Age article about Conde Nast described this trend well:

"Publishers have been increasingly trying to position themselves as partners to marketers, not only as vendors of ad space, and diversify their businesses in the process. Last year Hearst bought the search specialist iCrossing, for example, while Meredith bought the mobile agency Hyperfactory. A year ago a Conde Nast digital creative services unit said it would accept assignments from clients whether or not the ads were slated for Conde properties, creating ads for Kenneth Cole that appeared on YouTube and Facebook. Source Interlink Media, whose titles include Hot Rod and Snowboarder, acquired the digital-marketing and visual-effects studio Mind Over Eye."

Even a small newspaper, such as the 20,000-circulation Grand Island Independent in central Nebraska, is getting into this game. It created a service called giNetwork in which local businesses pay for the Independent's Web editor to set up their Facebook pages and Twitter accounts. Their posts are aggregated on the Independent's home page and on a dedicated giNetwork page.

The arrangement includes social media consulting and a regular email newsletter for the clients with tips and success stories, said Stephanie Romanski, Web editor and social media coordinator for the Independent.

Since launching in March 2010, the program now has about 40 clients that pay $99 a month for the service, Romanski said. That means the paper is collecting roughly $48,000 a year with very little overhead. The paper hopes to get 100 clients eventually, she said.

The program has been especially effective for local retailers and restaurants, Romanski said, because they offer discounts through their social media channels that drive customers to them.

Large publishers, such as Great Britain's Trinity Mirror, also are capitalizing on this opportunity. The company that publishes the Daily Mirror and about 240 regional papers in the U.K. will offer advertisers online marketing services such as Web design, SEO, social media strategy and online public relations.

The Guardian talked with Trinity Mirror CEO Sly Bailey about the initiative:

"If a company wants help with email marketing and a print ad in the Newcastle Chronicle then we should be able to offer that," she said. "It is very much the future of local media. Clients are demanding it and we want to be able to develop expertise in those areas."

Bailey said that several years ago Trinity Mirror acquired an agency based in Liverpool called Ripple Effect which offers services including digital design and build, search engine optimisation, email marketing, social media, online PR and Web analytics.

She said that excluding display advertising, the typical trade customer spends about £200 on ads online and in print but many of those customers spent £12,000 to £15,000 on a variety of other services through Ripple Effect.

The main lesson for any news company is to examine what digital skills you have built up to a point of excellence and to talk to business partners about their needs. If you have or can create the digital expertise they want, this could be a promising path to new revenue.

Such new approaches to revenue may even be better than the advertising model, said Steve Buttry, who's argued that newspapers should be developing a number of new services and products. (Disclosure: Buttry was my boss at TBD, where we worked on community engagement.)

"The truth is that advertising was always an imperfect solution for businesses: paying for mass audience when most of those customers would never use their products or services," Buttry, now director of community engagement and social media for Journal Register Co., told me in an email. "Digital technology lets us help businesses in more meaningful ways, such as direct sales, search, lead generation and precise targeting."

But John Morton, a newspaper industry analyst, was less optimistic about how much financial impact these new services can have.

"I doubt that offering this expertise for sale will be able to offset much of the secular shift of advertising away from newspapers, but of course every little bit helps," Morton told me in an email. "Newspapers still will have to find ways to capture a larger share of Internet advertising, for advertising is where the money is."

(Source: Jeff Sonderman, published in Poynter.org, 05/26/11)

Digital Overload

According to The Digital Lifestyle survey by Magnify.net in April, consumers and web surfers are facing a torrent of data growing faster than ever before. 78% of respondents were Technologists, Journalists, Entrepreneurs, Executives, and Professionals, with 48.5% saying that they were connected to the web "from the moment I wake up until the moment I go to bed."

64.2% said that the information coming at them today had grown by more than 50% compared with last year. 72.7% described their data stream as "a roaring river," "a flood," or a "massive tidal wave."

People are missing important news, information, and appointments; friendships and family suffer, says the report.

• 76.7% read email and respond evenings and weekends
• 43.2% answer texts or emails on dates/social occasions
• 57.4% never turn off their phones
• 33.0% check email in the middle of the night
• 35.2% answer work emails while with children
• 46.9% are unable to answer all emails
• 41.4% miss important news
• 39.9% ignore family and friends
• 16.9% miss appointments
• 62.5% wish they could filter out the flood of data

Steven Rosenbaum, author of Curation Nation, concludes that "... (since) the volume of raw data coming at us has increased more than 50% in the past 12 months...(and) as more digital devices and software services proliferate... data and speed of increase will grow exponentially... (and) will be unsustainable... "

He goes on to suggest that "... algorithmic solutions, better spam filters, smarter search, and more connected devices will fact-expand the problem... (while) human data management, shared and community filtering, and personal recommendations will allow 'content' consumers... (to) consume curated content... (and) surf less... "

(Source: The Center For Media Research, 04/26/11)

'Emerging Affluent' Are Key Digital Consumers

As a consumer's affluence increases, so do factors such as early adoption of new digital devices, consumption of digital content and usage of mobile devices, according to a study conducted by Publicis/Vivaki agency Digitas in partnership with research company Ipsos Mendelsohn.

But digital marketers might want to keep a special eye on those not yet affluent, but headed there -- dubbed the "emerging affluent" and "universally digital."

Digitas pointed to a changing "affluent landscape" in America. It found that what used to be called the "mass affluent" market -- with annual household incomes between $100,000 and $199,000 -- "has disappeared." These households, Digitas said, have lost their leveraged spending power, been forced to live on income alone, and mostly consider themselves middle-class.

They've given way to two groups with spending power: the truly affluent and the up-and-coming affluent. The former, the "class affluent," earns between $200,000 and $1 million annually, with most considering themselves upper-middle class.

The latter is the "emerging affluent." Members of this group earn the same income as the mass affluent group did, but they are under 35 years of age. Plus, they have "intensely digital media behavior."

Emerging affluent consumers, Digitas said, work in careers that will eventually deliver affluence (i.e., financial services, legal services, engineering). They consider themselves opinion leaders, follow trends, love to travel, are passionate about food and dining, and purchase both stylish youth-oriented brands like Scion, Diesel, and Samsung and true luxury brands, such as H. Stern, Tiffany, St. Ives and D&G.

Most importantly, they "use mobile devices for communicating, consuming content, enjoying music, and gaming. They use social networks and blogs, and they prefer apps to 411 to research restaurants, recommend products, or get deals from marketers."

Geographically, the highest concentration of the emerging affluent group was found to be in the Midwest.

The primary quantitative source for the study, titled "Affluence in America: The New Consumer Landscape," was the Mendelsohn Affluence Survey conducted in March. Digitas said it then sought signs of affluence, based on a range of lifestyle behaviors, and proceeded to identify the tiers of affluence.

Once the affluence hierarchy was established, Digitas said it mined the data further for source of income, attitudes, purchasing patterns and media usage.

(Source: Online Media Daily, 05/25/11)

Be the Ball...

Just like Chevy Chase giving advice to be the ball in the classic movie, Caddyshack, we need to "Be Digital."

Sales managers and salespeople need to use digital products to a point where they are totally comfortable with them. When we are comfortable and able to discuss the subject on the level of many of our digital clients we will sell more digital. Use a smartphone; show presentations on your tablet; put up Facebook, Twitter and LinkedIn pages; create a personal webpage; subscribe to texts; download apps; post Flickr photos and YouTube videos; and browse the web to see what your advertisers and competitors are doing.
I know. There's never enough time. But if we don't make time to use and learn digital, we won't be able to keep up, let alone get ahead in sales.

Follow Canada's Lead to Reduce Federal Debt

In 1996 Canada's debt to gross domestic product (GDP) ratio was approximately 67 percent -- just slightly higher than the United States' current ratio of approximately 62 percent.  Canada's Liberal Party was in charge of the federal government at the time and set out on a determined course to cut Canada's federal deficit and reduce the federal debt as a percent of the economy's GDP.  The plan was hugely successful, and when Finance Minister Paul Martin became prime minister in 2003, he continued the policy of spending restraint until he left office in 2006.  Martin's successor, current Prime Minister Stephen Harper, continued that policy for the next two years.  The result: by fiscal year (FY) 2009, the federal debt had fallen to 29 percent of GDP, say David R. Henderson, an associate professor of economics, and Jerrod Anderson, a second-year master's fellow, at the Naval Postgraduate School.

• The federal government achieved these reductions in debt not with large tax increases, but with substantial cuts in government spending.
• While Martin's 1995 budget did increase some taxes, the budget called for six to seven dollars in expenditure cuts for every dollar of increased taxes.
• Between FY 1995 and FY 1998, federal government program expenditure (government spending minus interest payments on the federal debt) decreased from C$123.2 billion to C$111.3 billion, a decrease of C$11.9 billion.

Lessons for the United States:

• Starting in 2013, raise the age eligibility for Medicare in incremental steps (for example, two months every year) until it equals the Social Security age.
• Starting in 2014, allow doctors to "balance bill" under Medicare instead of having the so-called doc fix under which payments to doctors would be increased.
• Begin making Medicaid payments to states via block grants.

Source: David R. Henderson and Jerrod Anderson, "Canada's Reversed Fiscal Crisis," Mercatus Center, May 2011.

Chrysler repays $7.6 billion in outstanding U.S., Canadian loans

DETROIT -- Chrysler Group today repaid $7.6 billion in loans to the U.S. and Canadian governments, nearly two years after the No. 3 automaker was rescued.

The company said it made a payment of $5.9 billion to the U.S. Treasury and $1.7 billion to Export Development Canada -- retiring loans that allowed Chrysler to exit bankruptcy in June 2009. Chrysler completed repayment of the loans six years ahead of schedule.

"Less than two years ago, we made a commitment to repay the U.S. and Canadian taxpayers in full and today we made good on that promise," CEO Sergio Marchionne said in a statement. "The loans gave us a rare second chance to demonstrate what the people of this company can deliver and we owe a debt of gratitude to those whose intervention allowed Chrysler to re-establish itself as a strong and viable carmaker."

With today's transaction, the U.S. government's stake in Chrysler has been reduced to 6.6 percent from 8.6 percent, and Canada's interest has been cut to 1.7 percent from 2.2 percent, a company spokesperson said.

Fiat SpA now owns a 46 percent stake, up from 30 percent, and a United Auto Workers trust owns 45.7 percent, down from 59.2 percent.

Chrysler's fortunes have been boosted by improved sales as it rolls out 16 new or refreshed models this year. In the first quarter, the company reported a net profit for the first time since exiting bankruptcy under the control of Italy's Fiat.

The automaker borrowed $5.1 billion from the United States and $1.6 billion from Canada in June 2009.
Chrysler said it has paid $6.5 billion in total to the U.S. government, and $2 billion in total to EDC. The amounts include $1.8 billion in interest.

President Obama said today the final payment in bailout funds extended by the U.S. government was a "significant milestone" and a sign that the U.S. auto industry is recovering.

Last week Chrysler secured new financing that allowed it to pay off the loans. The financing package includes a loan of $3 billion, debt securities totaling $3.2 billion and a revolving credit line of $1.3 billion.
The new financing will save Chrysler an estimated $350 million a year in interest expenses.

Fiat is now within striking distance of its goal to own 51 percent of Chrysler in 2011. Once Chrysler develops a vehicle that gets 40 miles per gallon on a Fiat platform -- a development expected in the fourth quarter -- Fiat can go to 51 percent.

Fiat has options to increase its Chrysler stake to more than 70 percent, Chrysler said this month in a filing with the U.S. Securities and Exchange Commission. Those options include the right to buy the U.S. Treasury's remaining stake in the 12 months after it repays the government.

Fiat also has an option to acquire 40 percent of the original stake held by the UAW's retiree health-care trust, Chrysler said. The option is exercisable from July 1, 2012, to Dec. 31, 2016, and in amounts of as much as 8 percent in any six-month period, according to the filing.

Bradford Wernle and David Phillips Automotive News -- May 24, 2011

Are All Sales Opportunities Equal?

The most widely accepted definition of a qualified sales opportunity is a decision-maker with a budget to purchase a product or service. But are all sales opportunities equal? Are identical offerings to two different buyers equal in value to the sales rep?

In the 1940s, Frank Bettger, author of the sales classic, "How I Raised Myself From Failure to Success," made several game-changing observations over a 12-month period:

-- 70% of sales were closed on the first meeting.
-- 23% closed on the second meeting.
-- 7% closed on the third meeting or after.
-- 50% of his time was spent chasing the 7% that closed on the third meeting or after.

By eliminating sales that did not close by the second meeting, Frank doubled his income!

When I learned Frank's simple and brilliant philosophy, I wondered if I could eliminate weak sales opportunities on the front end. How could I avoid high-effort, low-return sales, and sales I would never close?

Qualifying by itself is not enough for evaluation, so I assessed my best and weakest sales with questions like these:

* Which sales netted the highest profit with the least effort?

* What did those sales look like, including lead origin, products and services sold, price range, discount, and cycle length?

* With which types of customer was I most successful, company size, organizational makeup, decision-maker's position, buying committee size, and personality types?

From the answers, I developed a quantification method that helped me evaluate and segregate new sales opportunities.

By eliminating high-effort, low-return sales that pay lower commissions, wear you down, and drain your enthusiasm and passion, you can focus that lost time with a better attitude on high-return, lower-effort opportunities. This is a secret of top producers.

Auto Dealers Adjusting to New Business Environment

Auto Dealerships Are Making Money Again, But in Markets That Lost the Largest Percentage of Dealerships, the New Normal Means Different Things

The reduction of the dealership network over the past four years has left survivors in prime financial shape.

The average dealership net pretax profit as a percentage of sales was 2.1 percent in 2010, the highest since 1986, reports the National Automobile Dealers Association. The net pretax profit was 1.5 percent in 2007 before the economy crashed.

Dealers have learned to make more money with fewer sales because the downturn forced auto retailers to streamline operations. Low interest rates have slashed floorplanning costs.

But while financial results have improved at individual dealerships across the industry, Detroit 3 dealerships in some markets are still waiting to reap the benefits of the dealership consolidation.

The anticipated increase in sales and service business -- and a corresponding boost in profits -- that was supposed to kick in after the dealership consolidation has yet to happen.

In 2007, among all domestic and import brands, the average U.S. franchise posted 322 new retail registrations. In recovery year 2010 -- with fewer Detroit 3 dealerships and lower industry sales volume -- that dipped 11 percent to an average 286 per franchise, based on retail registration data from R.L. Polk & Co.

Although one of the reasons given by General Motors and Chrysler for eliminating nearly 2,800 dealerships was to increase dealership throughput, all of the surviving Detroit 3 brands except Buick (up 3 percent) and Ford (off 4 percent) suffered larger per-franchise losses than the industry average.

Despite the lack of gains in throughput -- and loss of share in some of the markets that absorbed the largest percentage of reduction in dealerships -- surviving Detroit 3 dealers say they are making the best of the new, leaner retail networks.

The economic recovery is fragile. Some of the factors helping to revive profits -- historic low interest rates and high used-vehicle values -- are variables beyond dealers' control, such as gasoline prices and the economy.

Dealers also worry that renewed factory pressure to improve dealerships could burden them with debt, undermining the efficiencies they put in place during the recession.

"Bad times breed good habits," says Tyler Corder, CFO of Findlay Automotive Group, a group of 24 dealerships based in Las Vegas. "The challenge is to sustain that when times get good again."

Bouncing back
The last time dealership net pretax profit margins were this good was in 1986, when Ronald Reagan was president, the average price of a new car was $12,950 and gasoline hovered around $1 a gallon, government data show.

World Class Automotive Group in Spring, Texas, helped Ford close down four Ford and three Lincoln stores in Dallas and Houston to increase volume at its own five Ford stores.

"Profits are soaring," says World Class CEO Randall Reed. And Reed's Chrysler-Dodge-Jeep store, which "took a beating" during the bankruptcy, is "now on absolute fire," he says.

"That was the whole intent after bankruptcy when the dealer body was shrunk," says Randy Berlin, global practice director for Urban Science in Detroit. "This was the intended result." Urban Science acted as a consultant for General Motors and Chrysler when the automakers' rejected dealerships sought reinstatement through arbitration.

Over the past three years, the U.S. dealership population saw the biggest decline in history, from 21,461 stores on Jan. 1, 2008, to 17,653 on Jan. 1, 2011, according to the Automotive News Data Center.

The vast majority of those losses were among Detroit 3 brands. As of Jan. 1, there were 18,744 Detroit 3 franchises, a 35 percent drop from the 28,724 franchises that were around at the start of 2008, Automotive News Data Center statistics show.

Urban Science used its own data to compare dealership count in U.S. markets for 2007 -- the year before the market crashed and dealership consolidations began in earnest -- and 2010, after consolidations were mostly finished.

The 10 hardest-hit markets lost 23 to 27 percent of their dealerships and 24 to 32 percent of their franchises, the consulting firm found.

Several of the markets -- such as the Allentown, Scranton and Reading areas of Pennsylvania and the Canton, Ohio, area -- consist of older, industrial cities in the Northeast and Midwest. Urban Science's Berlin notes that the South, with its growing population, suffered fewer declines.

All of the purged areas had way too many dealerships, he says.

Andy Daub, a partner in the Brown-Daub Auto Group, a group of seven mostly domestic-brand stores clustered around Bethlehem, Allentown and Easton, Pa., says there are still too many dealerships.

He says vehicle sales are on the rise but still about 10 percent lower than they were in 2007. Last year, Daub says, the group sold 4,000 new and 6,000 used units.

Post-recession profits are better, but only because inventory is tight and his organization cut back expenses, he says.

"I hope it lasts," Daub says. "But some market changes are based on factors out of our control."

Other factors
It will take more than a slimmer dealership network to sustain the industry's fatter profits.

"New-vehicle sales are improving, but new-vehicle gross profits generate less than 40 percent of the total gross profit of a dealership, and in many cases generate less than 30 percent of gross profit," says Carl Woodward, a Bloomington, Ill., accountant with more than 200 dealership clients in 15 states.

"Though new-vehicle sales are important, the other departments collectively are more important," Woodward says.

The service and parts and used-vehicle departments have contributed heavily to dealership's glowing results.

In 2010, NADA says, the average dealership's absorption rate was 59.6 percent, the highest in more than 10 years. The absorption rate is the percentage of dealership overhead covered by gross profit from service and parts.

"There has been more emphasis on such things as dedicated oil change lanes, aftermarket parts sales and display areas and other efforts to obtain more service and parts sales," says Paul Taylor, NADA's chief economist.

The tight supply of used vehicles has raised values and helped increase profits in used-vehicle departments. In 2010, the average retail gross profit per used vehicle jumped 28.6 percent year over year, to $2,214.

But the most critical boost to profits has come from historically low interest rates, which caused a plunge in floorplan expense, the interest dealers pay to finance vehicle inventory.

In 2010, NADA says, the average dealership's floorplan expense fell to the point where it was canceled out by factory incentives, resulting in a credit balance of $39 per new unit retailed.

As gasoline, food and other prices rise, dealers fear federal fiscal policy will change and interest rates will climb to stave off inflation.

"At some point, interest rates have got to go up," says Corder of Findlay Automotive.

More efficient
Dealers also have improved profits by whacking expenses and paying down debt.

"Right now we're up over last year with fewer stores than we had," says Chris Saraceno, vice president of Kelly Automotive Group in Emmaus, Pa. "We lost two Saturn stores."

Sentry Auto Group, which retails Ford, Lincoln and Mazda vehicles from three Massachusetts locations, also is more profitable on lower volume.

"For instance, we still spend heavily on advertising, but we spend less on a per-car basis than we did five years ago with no loss of effectiveness," says Chris Lemley, Sentry's president.

NADA statistics show the average dealership's net debt-to-equity ratio was 0.97 percent in 2010, the lowest since 2005, and the average return on equity was 24.8 percent, the highest since 2003.

But in addition to gasoline prices and product shortages, dealers recognize pressure from the factories to launch construction projects could put a stop to their progress.

"Many dealers have been asked -- or forced -- to make upgrades in recent years," says NADA's Taylor, explaining the recent multiyear climb in the average dealership's debt-to-equity ratio.

Dealers complain that as industry sales rebounded, the factories have resumed applying pressure to remodel or rebuild dealerships.

Overall, though, dealers say they're in better shape to meet economic challenges they expect to face this year. And they're cautiously optimistic the recovery will continue and business will boom.

(Source: Automotive News, 05/17/11)

In Consumer Behavior, Signs of a Gas Price Pinch

High gasoline prices have not derailed the economic recovery, but that's small comfort to Loraine Greene. A customer relations manager in the Hudson Valley of New York, Ms. Greene spent the weekend packing up to move to a rental house much closer to work.

At $4 a gallon, gas is too expensive to justify the 50-mile round-trip commute.

"The option was either to sell my truck and get something smaller, or to try to get closer to work," said Ms. Greene. She chose to move. The new house is just eight miles from the office.

Economists say steady job growth over the last three months, as well as this year's federal payroll tax cut, have offset the downward pull of rising energy costs on the economy as a whole. But like a lot of economic news these days, what looks good on paper does not feel good for Americans still digging their way out of the recent recession.

At a True Value hardware store in Wilmington, Del., customers stressed by the cost of filling their tanks are buying more replacement parts for wheelbarrows and lawn mowers instead of buying new equipment.

In the San Francisco Bay area, the daily number of cars driving across the Golden Gate Bridge has dropped while passengers on the buses and ferries have risen.

"If all your customers are paying $50 for a tank of gas that they used to pay $25 for, somebody is not getting that $25," said William Dunkelberg, chief economist for the National Federation of Independent Business.

According to a recent survey, one in four small businesses cited weak sales as their No. 1 problem.

Although gas prices have eased slightly in recent weeks, they are, on average, up about 30 percent over a year earlier. High oil prices have also driven up prices of food, airfares and even taxi rides in some regions, diverting consumers from other purchases.

The nation's largest retailer, Wal-Mart, which reported earnings on Tuesday, said high gas prices had restrained its shoppers, and its business. Sales at stores open at least a year fell by 1.1 percent in the first quarter, as visits to stores in the United States declined.

"Our customers are consolidating trips due to higher gas prices," said Bill Simon, who oversees the United States business. It was the eighth consecutive decline in same-store sales at Wal-Mart.

Lowe's, the home improvement chain, which reported a 5.7 percent slide in quarterly profits on Monday, said its traffic was down 3.4 percent in the quarter as customers made fewer trips.

"Rising gas and energy prices are cited by homeowners as the top factor affecting future spending plans, followed by the state of the overall economy and inflation in general," said Lowe's chief executive, Robert A. Niblock, explaining earnings that missed analysts' expectations in a conference call with investors.

MasterCard Advisors' SpendingPulse, which researches consumer spending, reported on Tuesday that the gallons of gas pumped nationwide in the last month fell by 1 percent from the period a year ago.

Conserving miles has become a new business priority at Topical BioMedics, where Ms. Greene works in Rhinebeck, N.Y. Her boss, Lou Paradise, recently invested in cloud computing so employees could access documents and programs and work from home more. He hands out gas cards as bonuses and birthday gifts, and holds seminars on how to make a car more energy-efficient. And when employees have to drive somewhere on business, he urges them to use the company cars -- a Volkswagen TDI, a clean-diesel car and a Ford Transit Connect van, which is relatively fuel-efficient.

Other companies are also trying to help workers cope with high gas prices. Robert Trow, who runs a small distribution company in Mashpee, Mass., recently gave his employees a raise -- on top of the one he gave in December -- to help them deal with pump prices.

At the hair products business Paul Mitchell, which is based in the Los Angeles area, the company gives employees 20 cents a mile when they carpool, and covers bus fare in full. More employees are taking the company up on the offers now. Even the chief financial officer, Rick Battaglini, has begun carpooling to work.

Overall, the economy, though still slowly mending, has largely been able to shrug off the effects of high gas prices. Since the beginning of the year, employers have added more than 750,000 jobs, which puts more money into the economy in the form of additional paychecks.

And while the rise in gas prices since the beginning of the year roughly translates into a loss of $75 billion to $100 billion in spending power if sustained for the entire year, the payroll tax cuts adds back about $112 billion, according to an analysis by Credit Suisse.

"It looks like those two things have fought each other to a standstill," said Neal Soss, chief economist at Credit Suisse.

Some have benefited from the higher gas prices. Online sales boomed in April as shoppers stayed home on weekends, clicking a mouse instead of driving a car. E-commerce sales grew 19.2 percent in April compared with a year earlier, the biggest increase since July 2007, according to SpendingPulse.

Car sales have also risen recently as consumers choose smaller cars. In April, vehicle sales rose 18 percent, as shoppers turned toward compact and fuel-efficient models like the Chevrolet Cruze, Ford Fiesta and Focus models, and even electric cars like the Nissan Leaf.

Tom Veasey, owner of the True Value in Wilmington, said that customers had been grumbling to cashiers about the high cost of driving, and those who might previously have traveled five miles to a Home Depot were now shopping in his store. But total sales were still flat, he said, as an increasing number of customers replaced parts rather than bought new gear.

"A new wheelbarrow is $59.95" and they can get a new tire for $20, Mr. Veasey said. "When things are going good they will just buy something new and save themselves the time it takes to repair something."

Airlines and hotel companies say that improvements in the broader economy are helping them continue to sell tickets and rooms. A Gallup poll released on Monday showed that more than six in 10 Americans planned to take a vacation away from home this summer, although they expected to pay more for transportation costs than last year.

Henry Harteveldt, travel industry analyst at Forrester Research, said he had detected a deceleration in advance reservations. "The booking path has been slowing down," he said. "We're now getting into the heavy intense period for summer vacation planning and there is concern among hotel operators that because gas prices are higher whether the customer is flying or driving, there will be less discretionary budget to spend" on things like restaurants, entertainment and other businesses that rely on travelers. For now, analysts expect oil prices to level off rather than shoot higher. But if the recent softening reverses and gas prices go higher, economists suspect that more consumers will react.

"There is some point where people may get a little more panicky about it rather than simply adjusting to it," Mr. Soss said.

(Source: The New York Times, 05/17/11)

Weak Dollar Responsible for High Gas Prices?

The weakening of the dollar since 2008 has added 56.5 cents to the price of gasoline, the congressional Joint Economic Committee (JEC) has found.  The average price of gasoline would be $3.40 per gallon, instead of the current average price nationally of nearly $4, if the dollar hadn't declined, says the Weekly Standard.

• The study of the dollar's impact was conducted by Republican congressman Kevin Brady of Texas, vice-chair of the bipartisan committee, and Republican staff.
• They blamed the Federal Reserve and its efforts to spur economic growth for the price increase.
• "Since the Fed launched its program of quantitative easing in late November 2008, the value (trade-weighted) of the U.S. dollar has declined 14 percent," the study calculated.
• "The declining value of the U.S. dollar has added $17.04 per barrel to the price of oil (Brent Crude)," thus driving up the price of gasoline.

The study used several yardsticks to measure the dollar's effect.

• For instance, while the price of oil has risen 150 percent in the United States since the end of 2008, it has gone up only 96 percent in Canada.
• The Canadian dollar's value has strengthened in recent years against the U.S. dollar.

Source: Fred Barnes, "Study: Weak Dollar and Federal Reserve Responsible for Sky-High Gas Prices," Weekly Standard, May 16, 2011. 

In Shift, Ads Try to Entice Over-55 Set

After 40 years of catering to younger consumers, advertisers and media executives are coming to a different realization: older people aren't so bad, after all.

Marketers like Kellogg's, Skechers and 5-Hour Energy drink are broadening their focus to those 55 and up, who were largely ignored in most of their media plans until recently. During this week's upfront announcements, the annual preview of the fall television season, network executives are planning to introduce shows created to have broad appeal, including to older viewers, and the ad dollars they represent.

This amounts to a reversal in thinking that took hold during the 1960s, when advertisers first started aiming for baby boomers, the largest segment of the United States population. But the reasons for the shift are not just demographic, they are economic.

As a result of the recent recession, unemployment rates for younger age groups have been far higher than those for older Americans. The most recent unemployment rate for those 20 to 24 years old is 14.2 percent; for those 25 to 34, it is 9.4 percent. The rate for people aged 55 to 64 is only 6.2 percent.

Financially, the disparity is similar. According to the Bureau of Labor Statistics, those people aged 45 to 54 and 55 to 64 had the highest median weekly earnings of any age segment in the United States: $844 and $860, respectively. Meanwhile, those 20 to 24 had weekly earnings of only $454. Those who are 25 to 34 earned $682.

Stephanie Pappas, a senior planner for BBDO NY, said there was now good reason for ad clients to seek the mature audience.

"In some ways, they are the ideal consumer. They have money, they consume loads of media, and they remain optimistic," she said.

The bimonthly magazine for AARP has been pushing to attract new advertisers, according to Patricia Lippe Davis, the vice president for marketing for AARP media. Recently, products previously thought of as youthful -- brands like Jeep and Shape-ups by Skechers -- have advertised in AARP The Magazine.

"The grandkids say I'm 'really cool now' but what they don't know is I always was," reads the text of the Jeep ad.

"We've seen an increase in advertisers targeting this booming demographic, many of whom are not the types of advertisers you'd expect to see in our media properties," Ms. Davis wrote in an e-mail.

For decades, television has been the most determined proselytizer on behalf of the premium value of reaching consumers aged 18 to 49. In the 1960s, ABC found itself hopelessly uncompetitive with CBS and NBC in what was then the standard ratings measurement, total households. So the network adopted a strategy to appeal to younger viewers with programs like "Batman," "Shindig," and "Mod Squad."

The idea caught on, and even as the boomer generation grew older, advertisers continued to court younger viewers -- first on the theory that they had not yet established brand loyalty, then because they were harder to reach than mature viewers who watched far more television.

Since then, all advertising sales have been based on two main groups, those people aged 18 to 49, and those 25 to 54. Once viewers reached 55, they were considered all but valueless.

In the last decade, NBC has been a central force in pushing that view, as the home of youth-oriented hits like "Friends" and "The Office." But Alan Wurtzel, the president of research for NBC Universal, initiated a study last year into a group he labeled "alpha boomers," the leading edge of the baby boom generation, which is now turning 65.

For companies to avoid shifting advertising and marketing attention toward older Americans is "a big mistake," he said. "You risk not only growth, but at some point you risk your brand."

Mr. Wurtzel said that as NBC put together its lineup of potential new series for fall, he made the programmers in the company aware of the attractiveness of the 55-plus audience. He described it as "one of the things we look at when we look at pilots."

The network has already ordered a new series, "Playboy," set in the 1960s, and this week renewed the drama "Harry's Law," which stars Kathy Bates, who is 62.

Mature consumers also seem to be spending on categories not traditionally associated with older people. NBC's study of those people 55 to 64 showed that they spent more than the average consumer on categories like home improvement, large appliances, casual dining and cosmetics.

They have also become heavy spenders on electronics and digital devices. The study also showed that members of the 55-to-64 age group were just as likely as those ages 18 to 34 to have high-definition televisions, digital video recorders and broadband service.

"They don't buy everything," Mr. Wurtzel said. "These folks don't play video games. But iPods? Yeah. iPads? Absolutely."

By contrast, CBS has for years argued that viewers of any age should count -- and CBS had by far the oldest audience. Recently, CBS seemed to build an effective strategy for reaching all audiences with broad-based hits like "CSI" and "NCIS" that feature older actors like Mark Harmon (although they are typically surrounded by younger performers).

The dismissal of CBS's strategy seems to have ended. "There is no perception that CBS has an inferior audience," said David F. Poltrack, the chief research officer for CBS.

The median age for audiences for every broadcast network has moved upward since 2006. NBC has moved to 50.1, from 48.5; ABC increased to 52.3, from 47.4. Fox, always the youngest network, aged to 45.4, from 41.5. CBS began at 53 and is now at a median age of 56.

"American Idol," once considered the hot show for young people, finished its first season 10 years ago with a median age of 32.1. This season, its median age is 47.2. ABC's biggest hit, "Dancing with the Stars," has a large complement of 50-plus viewers.

Patricia McDonough, senior vice president for insights, analysis and policy for Nielsen, said, "35 to 64 is becoming a relatively common target now."

Brent Bouchez, the founder of Agency Five-0, which caters to older consumers, said the biggest misconception about the group was that older Americans wanted to be younger. He cited the example of Ketel One, a vodka brand that he drank before it changed its advertising to aim for a younger audience. Mr. Bouchez said he stopped asking for the vodka at bars.

"I don’t want to look like the 53-year-old who's trying to look 30," he said.

(Source: The New York Times, 05/13/11)

Time to Sell Fort Knox?

The United States may have run up a huge debt, but it is not a poor country by any stretch of the imagination.  The federal government owns roughly 650 million acres of land, close to a third of the nation's total land mass.  Plus a million buildings.  Plus electrical utilities like the Tennessee Valley Authority.  And an interstate highway system.  Not to mention millions of ounces of gold in Fort Knox worth billions of dollars, says the Washington Post.

Economists of a conservative or libertarian bent have long argued that the federal government needs to get out of certain businesses, unload unneeded assets, and privatize such functions as passenger rail service and air traffic control.  No one advocates selling Yellowstone, but why, some economists ask, should the federal government be in the electricity business?

Economist Kevin Hassett of the American Enterprise Institute said the federal government should consider the sale of interstate highways.

• Motorists would have to pay tolls to the private owners, he said, but the roads would likely be in better shape.
• Federal, state and local governments could raise hundreds of billions of dollars through highway privatization.

The Obama administration is not opposed, in principle, to asset sales.

• The Treasury department is steadily unloading the mortgage-backed securities it acquired in the 2008 economic meltdown.
• The administration also has a program known as the Civilian Property Realignment Act that would sell some assets.
• But these asset sales aren't connected to the debt-limit debate, and aren't framed as a way of significant source of revenue for easing budget deficits.

Source: Joel Achenbach, "U.S. Should Sell Assets like Gold to Get out of Debt, Conservative Economists Say," Washington Post, May 15, 2011.

Shrinking Supplies Cause Used-Car Bargains to Disappear

Count on digging deeper to buy a used car for junior.

Prices for used cars hit a record high in April and are poised to go even higher as production cutbacks during the recession and the more recent Japanese earthquake have made used vehicles a hot commodity, prompting dealers to dive into the depleted pool for cars to fill their lots.

The one-two punch has added between $1,500 to $3,000 to the price of some used cars just in the last six months, meaning more money for trade-ins and a tougher time for shoppers looking for a deal.

"The price of used cars is just crazy right now," said Adam Lee, chairman of Maine dealer Lee Auto Malls. His dealership is paying hefty sums for cars it normally might not purchase to have a full inventory. "It can be a piece of junk -- cars we used to pay $2,000 or $2,500 for, we are now paying $5,200 to $5,500," Mr. Lee said.

Dealers say the prices of used vehicles will continue to soar as inventories of lower-priced and economy cars shrink. Japanese auto makers Toyota Motor Corp. and Honda Motor Co. have warned their production could be limited through year-end. U.S. dealers say they expect to exhaust existing inventories and face severe shortages of new Japanese cars by July.

The topsy-turvy market has dealers who once quickly dumped trade-ins to wholesalers now holding onto those vehicles to fill out their shrinking inventories. The move is raising the value of trade-ins, helping dealers convince customers to buy brand new cars.

Stephanie Samuels went shopping for a used car but found prices for a late model car nearly as much as for new -- and financing for the new car easier to obtain. "I was looking at buying a 2009 Ford Focus which was going to cost me about $16,000," Ms. Samuels said. "But for a couple grand more I could get a new Focus and a better interest rate. So now I am shopping new."

Last Friday, wholesale auto auction house Manheim, a unit of Atlanta-based Cox Enterprises Inc., said its index hit 126.6 in April and adjusted wholesale prices of used vehicles rose 5% from a year ago. It's the highest level the index has reached since it started tracking prices in January 1995. The index sets its baseline of 100 at January 1995.

The biggest increases are for fuel-efficient cars and small SUVs, where prices are up as much as 20% since January, according to Kelly Blue Book Co., which tracks trade-in values. For example, it says the average trade-in of a mid-size car, such as the 2008 Ford Fusion, rose $1,800 to $11,375 between January and May. Average value of a hybrid car such as a four-door Toyota Prius hatchback jumped $3,775 to $17,040 in those four months.

"It's going to be a seller's market out there," said Alec Gutierrez, Kelly Blue Book's manager of vehicle valuation. "Consumers will probably have to pay a premium for new or used cars but you also have this awkwardness in the market because if you want to wait to buy, but have a car that's worth a lot of money, you may want to trade it in."

The change in used-car pricing began in 2008 as the recession and fewer new-car leases pushed used vehicle prices to record lows. North American new-car sales fell to 13.2 million in 2008 from 16.1 million a year earlier, then to 10.4 million in 2009. They only inched up to 11.6 million last year.

High gasoline prices have spurred the run-up. High-demand used vehicles made only in Japan, such as Toyota's Prius, are expected to climb further.

Prius shoppers "may want to hold off until Toyota ramps up its production later in the year," said Jonathan Banks, executive automotive analyst for the National Automobile Dealers Association. "There will be a new car shortage; there is no way around that."

While consumers may suffer, U.S., German and Korean auto manufacturers that are unaffected by the Japanese component shortages and rental car companies will benefit. Hertz Global Holdings Inc. last month raised its outlook for the year in part on high residual values for its rental fleet.

"It's definitely good for new car sales," said Volkswagen of America Chief Executive Jonathan Browning. Higher prices act as a disincentive to buy a used car because new cars come with warranties, and better financing rates than used cars. In VW, Toyota and BMW's case, they also come with free maintenance for a several years.

Bill Bushnell, the general manager of Toyota Carlsbad, Carlsbad, Calif., said he normally carries only 100 used cars on his lot. He is in the process of acquiring 300 used cars from others.

"I'm loading up on them now to carry me through the summer," he said. "You will see a huge shortage in used cars come August."

(Source: The Wall Street Journal, 05/09/11)

New Profit Potential of Leasing Appeals to Dealers

A lease customer used to bring little or no profit to the finance office.

Dealerships primarily sold extended service plans. And with the typical lease at 36 months, leased vehicles were under warranty throughout the contract.

But now leasing is on the rise, climbing to nearly 19 percent of overall vehicle transactions in 2010, up from 13 percent in 2009 during the economic crisis, according to R.L. Polk.

And many dealerships are making bigger profits on sales of protection products such as tire and wheel coverage and dent and ding repair. Some sell an average of one or more products per lease. Why the change?

-- More protection products are available for lessees.

-- Dealers are tailoring their presentation of protection products to lease customers.

-- Manufacturers' finance arms -- which write most of the leases -- are offering incentives to entice lease customers to buy protection products.

"There are more products to offer than there were in the 1990s," says industry veteran Marv Eleazer, the finance director at Langdale Ford Co. in Valdosta, Ga. Eleazer leads an F&I managers' discussion group on Facebook.

"Menu sales presentations have gotten better," he says. "By that fact alone, people are buying more products on leases."

Insurance product sales for finance managers involved in the Facebook discussion group vary widely, from $300 to $1,400 per deal.

Generally, dealers gradually have become less dependent on service contracts for F&I income. CNW Research in Bandon, Ore., reports that service contracts' share of F&I profits has declined steadily to a low of 27.1 percent in 2010, from a high of 44.8 percent in 1990.

New opportunities
Mark Levy, finance director for Thompson Toyota in Edgewood, Md., has been in the auto retail business for 32 years, mostly in finance. For 12 years he ran an independent leasing company.

"Traditionally, the back-end gross on a lease was virtually nonexistent," Levy says. "Now leasing creates opportunities. You just have to have the right products."

Levy says lease customers often choose the Lojack security system or Dent M.D., a dent repair service. A paint sealant and fabric care combo is also popular.

To present the products, Levy uses Zurich's electronic menu software, which allows him to customize menus to suit lease customers. Service contracts obviously are out.

While customers are still seated at the salesperson's desk, Levy introduces himself and conducts a 17-question survey to determine their driving habits and gauge their interest in various protection products.

His store averages 70 new and 15 used vehicles a month, and 12 percent of new vehicles delivered are lease deals, about double from a year ago.

At least 75 percent of those lease customers buy one or more protection products, and the profit on a lease transaction runs about $750 per car.

Boston consultant Demitrious Kourias says some dealers are bundling protecton products into attractive packages designed for the lease customer. For example, a package might contain tire-and-wheel coverage, dent removal, windshield protection and roadside assistance.

Many have developed a product menu aimed at lessees, says John Jameson, CEO of general agent Dealers Resources Inc. in suburban Detroit.

In Waupun, Wis., Craig Bunkoske, business manager of Homan Auto Sales Inc., has seen lease penetration climb to 10 percent from zero over the past six months. He's making $1,200 to $1,500 per lease, $700 of the gross from product sales.

"We have decided to set up a customized menu for our lease customers," says Bunkoske, whose company operates a Chevrolet-Buick store and a Chrysler-Dodge-Jeep store that together sell 125 new and used units per month.

The menu will include maintenance plans, paint sealant, fabric care, windshield protection, wear and tear coverage, lost key replacement and tire replacement. Prices range from $195 for key replacement to $795 for interior and exterior protection.

The pitch
And the sales pitch? The products protect customers from paying hefty wear and tear charges when the lease expires.

"Usually, a customer who has leased before has experienced this firsthand," Bunkoske says. New lease customers "have heard the horror stories, or we can give examples."

A similar approach has helped publicly held Sonic Automotive Inc. boost product sales to lease customers.

In 2006, Sonic, the nation's third-largest dealership group, introduced electronic menus for all customers, including a menu targeting lessees. The lease menus offer fewer products, typically tire and wheel coverage, lease wear and tear, anti-theft and paint protection.

"We saw product sales increase for all customers," says Richard O'Connor, Sonic's vice president of F&I.

Sonic currently averages one product sale per lease customer, compared with more than 1.35 products per finance customer, O'Connor says.

Lease product sales are lower because adding products has a sharper impact on monthly payments, he says. The cost is spread over a shorter period. Leases tend to be 24 to 36 months, well below the 60 to 72 months typical of a finance contract, O'Connor says.

Hennessy Automobile Cos. finance exec Joel McGlamry says it's not as important to have a lease product menu as it is to cater to each customer's individual needs.

McGlamry, vice president of finance operations at the Atlanta-based dealership group, says a quarter of his customers lease. The group's 11 stores of mostly high-line brands sells 15,000 new and used units a year. "There are no canned word tracks and one-size-fits-all closes," McGlamry says. "The F&I manager must ask the right questions, listen to the answers and tailor the presentation on the fly."

The custom approach is snagging up to $1,400 per lease, $400 in product sales, he says.

Luring lease customers
The automakers' captive finance companies are the nation's largest vehicle lessors, and Toyota Financial Services is the biggest of them all, reports Experian Automotive.

Toyota Financial has promoted leases aggressively for the past few years and has tweaked its product lineup, adding an expanded maintenance plan in February.

Later this year it will roll out wear and tear coverage protecting lessees against hefty charges for wear and tear at the end of the lease.

The new maintenance plan has had "an excellent response" from dealers and customers, says Mike Scully, national products manager for Toyota Financial.

Lessors typically roll the cost of guaranteed asset protection, or GAP, into leases. But Toyota Financial leaves off GAP so that dealers can sell it separately.

Toyota and Lexus dealers are seeing brisk sales on GAP, which covers the balance of the auto loan if the vehicle is totaled or stolen. Toyota Financial's GAP sales for Lexus and Toyota have increased 25 percent in its last fiscal year, Scully says.

Other captives are sweetening product offers with incentives. Mark Powell is a financial service consultant for publicly held Penske Automotive Group's Mercedes-Benz and Audi stores in Chandler, Ariz. Penske is the nation's second-largest auto retailer based on new-vehicle retail sales.

Powell says Mercedes-Benz Financial allows dealerships to residualize the cost of its Star Service Maintenance Plan, which means the plan is treated like an add-on such as a sunroof.

The vehicle's residual value is its estimated worth at the end of the lease. If the residual value is 50 percent of sticker price, the customer would pay the equivalent of $400 for an $800 plan.

VW Credit Inc. adds 1 percentage point to the residual value if an Audi lease customer buys a maintenance plan. On a $50,000 car that would be $500.

Powell says leasing accounts for at least half of the sales at Penske's Mercedes and Audi stores in Chandler, Ariz. And 90 percent of customers purchase maintenance plans.

With lease promotions, product incentives and new product offerings, Powell and others like him say the lease is no longer a losing proposition for the finance office.

(Source: Automotive News, 05/04/11)

Auto Industry's in Upheaval, and Detroit 3 Are in the Driver's Seat

Detroit is up. Japan is down. Toyota is losing market share and General Motors is awash in profits.
Who'd-a thought?

This is clearly not the same plot the auto industry has been following for the past few years. This is a paradigm change in an American auto industry accustomed to decades of tough times for Detroit.

"The renaissance of the Detroit 3 is well on the way," AutoNation CEO Mike Jackson told Automotive News last week. "The profit results, product lineup and consumers' opinion will allow the domestics to have market share growth for the second year in a row. We will see a remarkable recovery in market share as the domestics drive toward 50 percent."

Flash back just five years: Detroit was the City of Gloom. Market share dwindled year after year. Ford Motor Co. suffered from poor quality and botched vehicle launches. Chrysler Group's lousy performance was about to earn it a divorce and good-riddance from Germany's Daimler. At GM, the buzzards were circling in the guise of stock speculator Kirk Kerkorian.

All the while, the Japanese auto industry grew bigger, richer and more prominent in the United States. The term "Big 3" was retired in favor of "Detroit 3" to address the rise of Toyota Motor Corp.

Back to May 2011, and things are a little different. As in the-world-has-turned-upside-down different.

As the U.S. economy continues to recover, the Detroit companies are well positioned to profit from rebounding auto sales. The Japanese Big 3, meanwhile, can't exploit that growth. They're choked by a dramatic production collapse stemming from the March 11 earthquake.

GM and Ford Motor Co. are now making boatloads of money, and death-threatened Chrysler Group, which just reported its first quarterly profit in five years, is soliciting money from the private sector to repay government loans. Chrysler even said it's running out of room for the 1,000 engineers it's adding at its headquarters in Auburn Hills, Mich.

In April, Detroit's market share was 46.5 percent, up 1.5 points from a year ago. Japanese brands were at 35.5, down 3.4 points.

Toyota and Nissan Motor Co. expect to lose money for the next six months. In the United States, Japanese brand dealers are running out of inventory as the benefits of a U.S. recovery are passing them by.

Could a new reordering of the industry be under way?

Japanese automakers often have overcome adversity in North America. But at the moment they have a very full plate.

Last week, American Honda Executive Vice President John Mendel informed Honda's dealers by letter that Honda's "overall production volume will be at significantly reduced levels as we continue production adjustments through the summer months."

Consoling the dealers for the loss of sales, Mendel said, "You have overcome significant challenges throughout the years and yet, in the long run, you have all prospered.

"We will work our way through this difficult time and we will all be stronger in the end," he wrote.

German, Korean brands up
It's not just Detroit that's thriving in North America. The Germans -- BMW, Mercedes-Benz, Audi and Volkswagen -- also are cleaning up.

In April, the BMW brand outsold Mercedes (not including Sprinter vans), pushing ahead of Mercedes through the first four months as the top-selling U.S. luxury brand.

Lexus, which held that sales title from 2000 through 2010, is running a distant third, and has no prospect of catching up because of production constraints.

And Hyundai and Kia continue to snap up market share. The Koreans are introducing hot new models and are desperately searching for U.S. production capacity.

Sales of the small Hyundai Elantra, redesigned this year and now built in Montgomery, Ala., topped 22,000 in April -- more than twice its volume from a year ago and nearly 13,000 more than the fast-selling Ford Fiesta.

After a record 2010, Hyundai's U.S. sales are up 31 percent and Kia's 42 percent through April, in a market that's up 20 percent.

Combined, the companies accounted for nearly 10 percent of the U.S. market last month. For the first time the Koreans outsold the combined European brands in America.

But as U.S. demand grows, Japan finds itself unable to produce even half enough.

Toyota CEO Akio Toyoda recently said it will take until the end of the year to fully restore vehicle output to normal levels -- and this as U.S. consumers clamor for exactly the sort of fuel-efficient cars that made Japan rich.

"This month, next month, as we get into the summer, we'll certainly be seeing inventories declining," Randy Pflughaupt, Toyota group vice president of sales administration, said in a conference call last week after reporting Toyota's April sales increase of just 1 percent, in an overall market that rose 18 percent.

Big change in small cars
In a man-bites-dog twist, Detroit's big gains in April were powered by selling larger numbers of fuel-efficient cars and lower incentives.

That reverses the U.S. industry's familiar trends of recent years. In part because of impending shortages of vehicles, Detroit 3 incentive spending is at its lowest point in five years.

As the Japanese competition scales back on incentives and sales -- Nissan postponed its annual May Tent Sale -- U.S. automakers are toning down their discounting. Autodata Corp. reports that Chrysler's average incentive spending per vehicle was $2,806 in April, a 23 percent reduction from a year earlier. Ford was down 20 percent and GM was down 14 percent.

In April, as gasoline prices topped $4 a gallon in some markets, Ford, propelled by higher car sales and the popularity of its small Fiesta and mid-sized Fusion, reported first-quarter net profits of $2.6 billion, its best first-quarter result since 1998.

GM last week also posted a quarterly operating profit of $2.0 billion, excluding special items -- its fifth straight quarterly profit since emerging from bankruptcy.

In April, GM sold 25,160 units of the compact Chevrolet Cruze, whose Eco version is rated at 42 mpg on the highway. The Cruze was nearly 2,000 units behind Honda's Civic but topped the Toyota Corolla by nearly 1,000 units.

GM CEO Dan Akerson remarked at a recent industry gathering that when soaring gasoline prices spooked consumers in 2008, GM didn't even have a competitive small car to sell.

"We're finally seeing the Honda Civic buyer," said Michael McGuire, dealer principal at McGuire Chevrolet-Cadillac in Newton, N.J. He said that in addition to older, traditional GM buyers looking to downsize, the Cruze appeals to younger people who generally have stuck to Japanese brands.

UBS Securities analyst Colin Langan wrote in a research note this week that things should get better for GM as the year unfolds. Langan said GM stands to pick up 1.1 percentage points of market share at the expense of Japanese automakers because of Japanese production constraints.

GM's U.S. market share grew to 19.6 percent through the end of April, from 18.7 percent in the first-quarter of 2010, according to the Automotive News Data Center.

Langan wrote: "GM will be the biggest beneficiary of the upcoming Japan-related inventory shortages."

Never say always
Not everyone believes the sea change is permanent.

"It's not impossible that on a short-term basis you may see some market share variations, because of the impact that the earthquake has in the minds of people," Carlos Tavares, chairman of Nissan Americas, told Automotive News. "Monthly bumps may happen. But we need to judge on a full fiscal year basis."

But it is clear that for the first time in recent history, U.S. automakers believe they have the opportunity and the vehicle lineup to reclaim some of the market they have lost to the Japanese.

"What we need to do is really make sure that the quality, reliability and durability of our cars is an unexpected surprise for people," Mark Reuss, GM's North America boss said last week. "It's sort of a once-in-a-lifetime opportunity for us to get people into our cars and trucks and have them experience the excellence of the product that they may not have given us consideration for in the past.

"We're taking it very seriously."

(Source: Automotive News, 05/09/11)