Analyst Note July 2013

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Analyst Note July 2013

  1. 1. 1  J.D.  Power  does  not  guarantee  the  accuracy,  adequacy,  or  completeness  of  any  information  contained  in  this  publication  and  is  not  responsible  for  any  errors  or  omissions  or  for  the   results  obtained  from  use  of  such  information.  Advertising  claims  cannot  be  based  on  information  published  in  this  publication.  Reproduction  of  any  material  contained  in  this   publication,  including  photocopying  in  part  or  in  whole,  is  prohibited  without  the  express  written  permission  of  J.D.  Power.  Any  material  quoted  from  this  publication  must  be  attributed   to  J.D.  Power.   ©  2013  J.D.  Power  and  Associates,  McGraw  Hill  Financial.  All  Rights  Reserved.   Canada   July  30,  2013     1 § It’s  understood  that  across  a  segment,  there  are  some   differences  in  the  various  models  available.  However,   the  notion  that  one  compact  car,  for  example,  has   drastically  different  capabilities  than  another  is   spurious  at  best.  As  such,  when  there  is  a  high   percentage  of  vehicle  rejecters  saying  they  did  so   because  a  vehicle  didn’t  fit  their  needs  (29%  of   compact  car  shoppers;  33%  small  CUV;  and  31%   midsize  sedan)  it’s  important  to  ascertain  which   vehicle  they  ultimately  purchased.   § Secondary  analysis  finds  that  despite  rejecting  a   particular  model  due  to  the  perception  that  it   wouldn’t  meet  their  needs,  the  majority  of  shoppers   eventually  buy  a  very  similar  model.  For  instance,  of   those  who  rejected  a  compact  car  due  to  a  perceived   gap  in  needs,  66%  ultimately  purchased  another   compact  car.  A  similarly  significant  percentage  of   rejecters  of  small  CUVs  (47%)  and  midsize  sedans   (51%)  also  stayed  within  the  respective  segment  for   their  eventual  purchase.   2 § What  is  the  potential  impact  in  terms  of  dollars  at  the   dealer  level?  If  a  hypothetical  mass  market  franchise   sells  30  compact  cars  per  month,  average  industry-­‐   wide  close  ratios  suggest  those  30  sales  are  generated   from  approximately  88  prospects,  resulting  in  12   prospects  who  left  the  showroom  prior  to  any  price   negotiation  and  under  the  impression  that  the  vehicle   they  evaluated  did  not  fit  their  needs.   § What  has  been  regarded  as  an  unavoidable  product   issue  now  takes  on  new  meaning,  given  that  eight  of   those  12  brand  rejecters  walk  directly  into  another   dealership,  where  they  purchase  a  very  similar   vehicle.  Given  that  the  YTD  average  front-­‐end  gross   profit  on  a  compact  car  in  Canada  is  approximately   $1,050,  those  lost  sales  amount  to  more  than   $100,000  in  annual  lost  profitability.     § What  remains  is  a  soft-­‐skill  opportunity  for  dealership   staff,  particularly  in  the  discovery  phase.  A  vehicle   may  well  suit  a  customer’s  needs,  but  if  you  don’t   know  what  those  needs  are,  you’re  never  going  to   convince  them  it  will.     Behind  the  Numbers   Selling  Customers  on  a  Better  “Fit”   jd.ney@jdpa.com   416-­‐507-­‐3254   The  December  2012  Analyst  Note,  Gate  Crashers,   debunked  the  myth  that  the  majority  of  lost  vehicle  sales   occur  during  the  price  negotiation  phase  (they  happen   earlier  in  the  process)  and  the  top  reason  for  vehicle   rejection  is  price,  (it’s  actually  the  shopper’s  perception   that  a  particular  vehicle  did  not  meet  their  needs).   New  analysis  suggests  that  far  from  being  a  product  issue   dealers  cannot  control,  sales  staff  may  exert  influence   over  that  impression  simply  by  staying  more  in  tune  with   shoppers’  needs  in  the  vehicle  discovery  phase.     Indeed,  recent  sales  data  indicates  the  majority  of   shoppers  eventually  buy  a  vehicle  in  the  same  segment  as   one  previously  rejected  because  it  “didn’t  fit  their  needs.”     THE  CASE  FOR  A  BETTER  NEEDS  ASSESSMENT   Most  Customers  Stay  In-­‐Segment   Source:  J.D.  Power  Canadian  Consumer  Retail  Experience  Study SM   29%   33%   31%   0%   10%   20%   30%   40%   50%   60%   70%   0%   10%   20%   30%   40%   50%   60%   70%   Compact  Car   Small  CUV   Midsize  sedan   %  Rejected  a  model  because  "didn't  fit  my  needs"   %  Purchased  another  in-­‐segment  vehicle  
  2. 2. 2 Brian Murphy 416-507-3253 ▪ brian.murphy1@jdpa.com July 30, 2013 J.D.  Power  &  Associates  does  not  guarantee  the  accuracy,  adequacy,  or  completeness  of  any  information  contained  in  this  publication  and  is  not  responsible  for  any  errors  or  omissions   or  for  the  results  obtained  from  use  of  such  information.  Advertising  claims  cannot  be  based  on  information  published  in  this  publication.  Reproduction  of  any  material  contained  in  this   publication,  including  photocopying  in  part  or  in  whole,  is  prohibited  without  the  express  written  permission  of  J.D.  Power  &  Associates.  Any  material  quoted  from  this  publication  must   be  attributed  to  J.D.  Power  &  Associates.   ©  2013  J.D.  Power  &  Associates,  McGraw  Hill  Financial.  All  Rights  Reserved.   6120 19 4849 3 New Vehicles Used Vehicles Cash Lease Loan 48 53 58 63 68 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 New Used $465 $485 $505 $525 $545 $565 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 New Lease New Loan Percent of Total Transactions (Past 12 Months) Average per Customer 72 Months and Greater 63% 0% 10% 20% 30% 40% 50% 60% 70% 2008 2009 2010 2011 2012 2013 Data from JDPA PIN Incentive Spending Report (ISR) 20% 30% 40% 50% Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 % Negative Equity Trade-In % Percentage of negative equity vehicles at trade-in $27,000 $28,000 $29,000 $30,000 $31,000 $32,000 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Vehicle Price Transaction Price

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