August 29, 2002

Rebates and low interest financing motivate car-buyers – J.D. Power

Westlake Village, California – Aggressive manufacturer-sponsored rebates and low-interest finance rates that have spurred strong auto sales are proving to be an effective tool in influencing the decision-making process of new-vehicle buyers, according to the J.D. Power and Associates 2002 Escaped Shopper and Owner Loyalty Study released today.

The study, which examines the reasons why new-vehicle shoppers consider, but reject certain models, finds that price and incentives play an important role in why consumers reject one model over another. Among new-vehicle buyers who rejected at least one other model and who obtained zero-percent financing, nearly one-half rejected another model because it failed to offer sufficiently low rates.

“The study shows that shoppers weigh the incentives of one model over another,” said Chris Denove, partner at J.D. Power and Associates. “When zero-percent financing first hit the scene, it drew people into the market who otherwise would have delayed their purchase. But now that the newness of it has worn off, we’re seeing that 2.9 percent interest rates will do just as good of a job in convincing someone to buy one model over another that doesn’t offer a similarly low rate.”

Price continues to be the primary reason consumers decide not to purchase a model they originally consider. The study finds that when someone considers two or more cars, they usually end up buying the less expensive model.

Competitive price advantages help explain why Hyundai, Kia and Suzuki have the highest closing ratios among non-luxury nameplates, and Acura and Infiniti have the highest closing ratios among the luxury brands. Some high-end brands such as Cadillac, Lincoln and Porsche are frequently purchased by people who are committed to buying that specific make, and therefore rarely go out to look at any other makes. These brands, however, have relatively low closing ratios among people who also look at alternative models that are lower priced.

“People frequently go out and look at one or two aspirational models that stretch their budget, but when it comes time to write a cheque, practicality wins out in the end,” said Denove.

One of the more surprising findings of the study is that salespeople sometimes cause shoppers not to purchase the models they represent by turning them off to the entire brand. Overall, 16 percent of vehicles are rejected due at least in part to the shopper’s perception that the dealership staff was unprofessional or treated them badly.

“Some people get an uneasy feeling about the way their salesperson handled their business, so they decided to buy an entirely different make rather than driving across town to find another dealership that sells that same type of vehicle,” said Denove.

The study also shows that some perceptions about vehicles do not always match reality. For example, Jaguar is one of the most frequently rejected brands because of reliability concerns. The J.D. Power and Associates 2001 Vehicle Dependability Study, however, shows that Jaguar actually manufacturers some of the most dependable vehicles on the road. BMW and Mercedes-Benz models are frequently rejected because people believe they are too expensive to maintain, yet the two brands provide free scheduled maintenance for the first few years.

“It takes a long time for people to acknowledge product improvements, but just a moment of bad press to sour the public’s opinion of a vehicle,” said Denove. “This is an area of opportunity for manufacturers and dealers to counter these kinds of misperceptions.”

The 2002 Escaped Shopper and Owner Loyalty Study is based on responses from more than 30,300 new-vehicle owners who registered their vehicle in January and February 2002.

Top 10 reasons cited by vehicle owners for rejecting particular models:

  • Total price too high
  • Total monthly payment too high
  • Didn’t like style/design of exterior
  • Limited availability on dealer lots
  • Salespeople didn’t act professionally
  • Was not available with rebates/incentives
  • Didn’t like look/design of interior
  • Concerned about reliability
  • Was not available with low-interest financing
  • Vehicle was too small

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