Auto Industry Feels the Pain of Tight Credit

The auto industry is getting sideswiped by the housing crisis.

Auto lenders and banks, closing their wallets, have prevented hundreds of thousands of consumers from obtaining the financing for a car. Home equity loans, which had been used in at least one of every nine deals, when lenders were more generous, are no longer a source of easy money for many prospective buyers. And used-car prices have fallen nearly 6 percent as repossessed cars and gas-guzzling trucks and S.U.V.’s flood auction lots.

Those forces, on top of the softening economy, are putting enormous pressure on the American auto industry as it faces what may be its worst year in more than a decade. About 15 million vehicles are expected to be sold in 2008, down from 16.2 million last year, as sales reach the lowest levels since 1995, according to the marketing firm J. D. Power & Associates.

The impact on the broader American economy could be profound. Not only is the car a consumer’s biggest purchase after the home, but the auto industry remains one of nation’s most important economic engines. With less money available to bolster the industry’s growth, the businesses that support it are also facing the prospect of a sharp slowdown.

“It is a bleak picture, and it all hinges on the availability of financing,” said William Ryan, a financial analyst at Portales Partners who has followed the auto business for years. “The whole universe related to the auto industry is touched in some way — parts suppliers, manufacturers, salespeople, trucking people, the paint and metals industries. Even semiconductors.”

Within the auto sector, problems stemming from the continuing tightening of credit have already started to spread. Auto lenders like Chase, Capital One and GMAC are finding it harder and more expensive to obtain money for loans. Profits also look dimmer as the lenders absorb losses from defaults and pull back from making new loans.

Car dealers and manufacturers will probably face months of weaker profits as they offer more incentives to sell new vehicles. Luxury car sales, which provide outsize profits for auto companies, are off 13 percent from last year, according to the Autodata research firm. And consumers, facing potentially higher mortgage payments and $4-a-gallon gas, are delaying purchases of midmarket cars.

“The housing crisis, defined with the credit crisis, has really knocked consumers back on their heels,” said Michael J. Jackson, the chairman of AutoNation, the largest automobile retailer.

But the auto industry may not suffer the same severe downturn as the housing sector. One reason is that auto lenders have long issued loans expecting that vehicles, as collateral for the loans, start to lose value as soon as they are driven off the lot. In contrast, mortgage lenders during the housing boom believed that home prices would keep rising.

Still, the parallels are striking. Easy money and lax underwriting helped extend a boom for automakers from 2005 to early 2007. With Detroit pumping out new cars, consumers were encouraged to buy even though they might not have needed a new vehicle.

Now, just as in the housing sector, the auto industry is suffering, too.

Borrowers are falling behind on their car payments at a rate faster than in other recent downturns. And losses are considerably worse. Auto lenders sustained losses on about 3.4 percent of their loans in the first quarter, a rate about 30 percent higher than in 2002, according to data from Moody’s Economy.com. Even some of the most creditworthy borrowers are stressed.

Recently there have been a few small signs of improvement. But auto lenders have struggled to find investors willing to buy packages of new loans. Just as in the mortgage markets, a sterling credit rating — the bond insurer’s seal of approval — is no longer trusted.

“It’s a challenge, but it’s not a crisis,” said William F. Muir, president of GMAC, the financing arm of General Motors that is now operated as a joint venture.

As the pool of money available to auto lenders has dried up, they have cut back on making new loans. Since late last year, nearly every auto finance company has tightened its lending standards. They are forcing borrowers to put more money down. They are also demanding higher monthly payments and requiring stronger credit records and more stringent documentation.

Subprime auto lenders have been forced to pull back the most. AmeriCredit, a big subprime finance company, said it would issue about $3 billion in new auto loans this year, compared with $9.2 billion in 2007. That translates into around 340,000 fewer vehicles being financed this year. But lenders catering to less risky borrowers are also retrenching.

“Capital One is pulling back, Citi is pulling back, HSBC and Wells Fargo are pulling back,” said Mr. Ryan, the analyst. So are the finance entities that serve the major automakers, like GMAC, Chrysler Financial and Ford Motor Credit. “What you are seeing at AmeriCredit is probably happening everywhere else, but probably to a lesser degree.”

Many dealers say that buyers who would have been shoo-ins for a loan a year ago are now being turned away. Ken Somerville, business manager at Pedigo Chevrolet in Indianapolis, said the tougher standards were having a “significant impact” on his ability to help customers get financing and close a sale.

“Chances are, if we can’t help them, they’ve already been somewhere else that couldn’t either,” he said.

Some of the biggest drops in car sales have been in areas where home prices have fallen most sharply. The housing boom created thousands of jobs, robust consumer confidence and strong demand for pickup trucks. Today, that has all vanished.

As home values have declined, millions of consumers have maxed out on home equity debt. In hot markets like California, nearly 30 percent of all consumers tapped into the value of their homes to help finance their new cars, according to CNW Marketing Research. In Florida, about 20 percent used home equity loans. New car sales in both states are down about 7 percent.

Those areas are also seeing surges in repossessed vehicles. Bill Glover, a veteran repo man in Fort Meyers, Fla., says he has recovered more than 100 cars a week since October, doubling his usual business. “I’m picking up 2008s already,” he said.

In the past, Mr. Glover mostly took back cars from borrowers with sketchy credit who habitually fell behind on their car payments. But that circle has widened. “Lately what we’re picking up is crew-cab pickup trucks,” Mr. Glover said, “and anything having to do with construction.”

The rise in recovered vehicles, along with tighter loan terms and weak demand from buyers, has put pressure on the used-car market too. In April, sale prices dropped 5.9 percent from a year earlier, with S.U.V.’s and pickup trucks plummeting even more, according to the Manheim Used Vehicle Value index, a widely followed measure that was not adjusted for seasonal differences. Prices had been rising for more than four years until last fall.

Analysts say there are few signs that this downward spiral will end soon. At the Midwest Auto Auction lot in the Detroit suburbs, there were plenty of deals one recent Friday morning.

Drivers shuttled more than 180 vehicles across the auction lot in two lines as the auctioneer, Ed Dunn, wearing an ivory cowboy hat from his perch above the floor, bellowed their make, model and year.

The first car up for sale was a 2007 Lincoln MKZ luxury sedan with leather seats, which had been repossessed by a local credit union. But there were no bids. So Mr. Dunn lowered the starting price again and again.

At long last, somebody bid $13,200 for the car. Sold? Sure. But at roughly $10,000 below its Kelley Blue Book value.

SOURCE: NEW YORK TIMES, MAY 27, 2008

European Automakers' U.S. Sales Fall as Luxury Buyers Rein In

European automakers' U.S. sales fell 1.2 percent in March, the third consecutive monthly decline, as recession-wary consumers shied away from luxury vehicles.

Sports-car maker Porsche SE had the biggest drop, 25 percent from a year earlier. Sales fell 5.4 percent at Bayerische Motoren Werke AG, the largest seller of luxury autos in the U.S., and 3.7 percent at Daimler AG's Mercedes-Benz. Volkswagen AG's namesake brand rose 13 percent, while its Audi sales slid 0.4 percent.

With record high gasoline prices and consumer sentiment at the lowest in 16 years, industrywide U.S. sales of cars and light trucks dropped 12 percent, according to Bloomberg data. The market is ``gripped by recession fears,'' Porsche said.

Makers of luxury vehicles ``are not completely immune,'' said Tom Libby, an automotive analyst at J.D. Power & Associates in Troy, Michigan. ``It is significant that a high-end brand like Porsche is down by so much.''

The March decline for the 16 European brands, to 97,743 cars and light trucks, came as sales skidded 19 percent at General Motors Corp. and 10 percent at Toyota Motor Corp. The Europeans fell 9.8 percent in January and 4.9 percent in February and were down 3.4 percent for the quarter, according to Autodata Corp.

The March drop at Stuttgart, Germany-based Porsche included a 43 percent plunge for its 911 line of sports cars. Sales of its Cayenne sport-utility vehicle rose 33 percent.

Porsche Chief Executive Officer Wendelin Wiedeking had said he was reducing North American inventory in anticipation of slumping sales.

BMW

BMW sold 27,404 vehicles last month, with a decline of 8.7 percent to 23,115 for the namesake brand and a 17 percent increase to 4,289 for the Mini brand, the Munich-based company said in a statement.

Sales of BMWs have softened in major markets such as California and Florida because of a weakened real estate market, said Tom Purves, chairman of BMW North America, in a March 19 interview in New York. He said the company's U.S. sales are being hurt by short supply, which may continue until midyear.

The Mini brand benefited from its new Clubman model, a slightly larger version of its small sports car.

Volkswagen, Europe's largest automaker, reported sales at its namesake brand of 19,587 vehicles, an increase from 17,355 a year earlier, with gains of 20 percent for the Jetta sedan and 17 percent for the Eos small convertible.

The Wolfsburg, Germany-based automaker is introducing five new models this year and has set a sales goal of 800,000 vehicles in the U.S. by 2018, after reaching 230,600 last year.

Volkswagen's Audi luxury-vehicle division's sales decreased to 7,987 from 8,020. Audi, based in Ingolstadt, Germany, posted declines of 32 percent for the Q7 sport-utility vehicle and 25 percent for the A3 sport compact.

Daimler's Mercedes sales fell to 20,808 from 21,612, the Stuttgart-based company said in a statement. Its E-Class models declined 24 percent. Mercedes reported a 50 percent gain for its entry-level C-Class line.

Daimler also said its Smart USA unit sold 1,734 of its two- seat cars, which went on sale in the U.S. in mid-January.

SOURCE: BLOOMBERG.COM, APRIL 2, 2008

The Lost Generation

What is the biggest problem for the domestic auto industry? It is not union wages or the costs of medical care benefits. The new union contract is supposed to trim those costs. Quality is no longer a deal-breaker either. Even Consumer Reports is beginning to say that Detroit cars are good.

So what is it? If you listen to Detroit executives, the problem is that customers are living in the past. They do not know that the home team has corrected its mistakes and now builds some first-rate cars and trucks.

These executives may be correct in thinking the customers are not aware of the progress that Detroit has made. I have a different opinion, however. Today's American consumers just do not care.

People are happy with their Toyotas, Hondas and BMWs. A few newspaper stories about some Toyota quality problems will not send them running into Chevy or Ford showrooms.

In the 1990s, the domestic industry's edge in sport utility vehicles helped it find buyers who would not consider a domestic make for a passenger car. It was not rare to see a driveway with a Mercedes, BMW or other foreign sedan paired up with a Jeep or Chevy sport utility vehicle. Over the past decade, however, foreign manufacturers made a big push into the light truck business and began pleasing customers in that segment of the market.

In short, the foreigners, especially companies like Toyota and Honda, have an enormous amount of goodwill credit.

General Motors is the best example of a U.S. manufacturer building better vehicles. Its new cars and trucks--some already on the market--have handsome designs, new engines, six-speed transmissions, fine interiors, tight body fits and good quality.

Take the Saturn Aura, the best ever sedan, by far, for that division. Saturn launched the Aura a year ago, but sales have been sluggish--only 4,425 units sold this October. The new Chevy Malibu, a close cousin of the Aura, is the most attractive-looking GM car I have seen in decades. GM is starting Malibu production at a second North American plant, but it will take at least a few months to see whether this family sedan will be a sales winner. Either way, GM is making a big bet on this car.

That is only part of GM's new product offensive. Saturn, the company starved for new models until recently, also has a brand-new VUE crossover sport utility and will soon import a new small car, the Astra, from Europe. This spring, Saturn launched the Outlook, a big crossover SUV, and both the GMC and Buick divisions have versions of this sport utility.

Next spring, Pontiac gets the G8, a large rear-wheel-drive sedan, from its Australian affiliate. Cadillac just launched the new CTS sedan, and it recently won the prestigious Car of the Year award from Motor Trend magazine. Next fall, the Chevrolet division gets a new big crossover, the Traverse. Meanwhile, the big GM trucks that started coming out last year are doing well, and that includes such pickups as Chevrolet Silverado and GM Sierra; the Chevy Tahoe and Suburban SUVs; the GMC Yukon SUV; and the Cadillac Escalade SUV.

That is an enormous product portfolio of new stuff, so much that I predict that GM's market share will start growing instead of falling. The problem is that I do not expect much growth. I think that GM may get back 25% to 26% of the market in 2008 vs, 23.5% earlier this year.

Keep in mind that manufacturers such as Toyota, Honda and Nissan build many of their models in the U.S., and even companies like Mercedes, BMW and Hyundai have local assembly plants. On the other hand, a number of Detroit's vehicles come from Canada (such as the popular Chevy Impala, Chrysler 300 and Ford Edge), or Mexico (Chevy HHR, Ford Fusion and Chrysler PT Cruiser). Patriotism is less of a motivator for U.S. auto buyers than it was 20 years ago.

John K. Teahen Jr., a columnist at Automotive News, writes in a recent edition: "Any auto sales executive will tell you that winning back a defector is just about the toughest sales job in the world."

Teahen also writes, "To regain market share, the Detroit 3 must beat the foreign cars on desirability. And that won't be easy." I say it is almost impossible to win back many of today's drivers. With striking designs, Detroit may lure in a few customers, especially from the lesser foreign brands such as Subaru, Mitsubishi or Mazda. Even so, I predict that many of the customers who felt wronged or betrayed by their Detroit cars will not return.

The industry's long-term hope is to win over the new generations coming up all the time. They do not hate Detroit cars. It is slow going to capture customers that way, but good cars will triumph over the long term.

By 2009, GM may be able to hold market share in the 26% range. Ford can gain a little ground--when it has the right vehicles. I'm less optimistic about Chrysler, which seems determined to reduce its market share.

It took Detroit decades of selling poorly designed vehicles in order to get into its current predicament. With all of the excellent cars and trucks on the market today--from foreign and domestic manufacturers--it will take a good while for Detroit to rectify the situation.

Source: Forbes, 12/04/07

Truck rated safe, with asterisk

When the Insurance Institute for Highway Safety announced the latest list of what it considers the safest vehicles last week, there was a surprising newcomer: a pickup truck.

This is the first time a pickup has been on the list since the institute began giving out the Top Safety Pick designation two years ago. The institute had not tested pickups for side-impact protection until recently because it said it did not have the time. Now, pickups are undergoing the complete round of tests.

The newcomer is the Toyota Tundra, which beat its domestic competitors from Ford, Nissan and Dodge. The Chevrolet Silverado and a close relative, the GMC Sierra, were not among the vehicles tested.

To be named a Top Safety Pick, a vehicle must receive a score of good — the highest rating — in the institute’s front, side and rear-impact tests. By combining these tests — which the institute says cover the most common collisions — into a single award, the institute says it believes it is easier for consumers to identify vehicles that offer the best overall protection.

Starting last year, the institute added a crash-prevention feature, electronic stability control, to its criteria. Stability control, a computerized system designed to keep vehicles from skidding out of control, must be either standard equipment or available as an option. Studies have shown that a stability system significantly reduces single-vehicle crashes caused by a loss of driver control. The institute estimated that if all vehicles were equipped with such systems, as many as 10,000 fatal crashes could be avoided each year.

The Tundra got the top pick designation even though its stability control system doesn’t work when four-wheel-drive is engaged. That has drawn criticism from Consumer Reports.

“It’s troubling to me that the one time you would really need E.S.C. — in the snow — that there is no E.S.C. available,” said David Champion, senior director of auto testing for Consumer Reports.

Of course, stability control can still be valuable when a vehicle is in two-wheel drive on dry pavement, especially in a pickup with a high center of gravity, Mr. Champion said. If a driver loses control, a stability system can help prevent a slide and keep the truck from rolling over.

Mr. Champion noted that pickups like the Silverado and Dodge Ram had stability control systems that continued to work in four-wheel drive.

Toyota said its stability control would not work in four-wheel drive because the company chose a particularly rugged design that does not incorporate a center differential. In most four-wheel-drive vehicles, the differentials deliver power to all the wheels. Toyota said that a heavy-duty truck like the Tundra wouldn’t benefit from having a center differential because that’s just one more weak part that can break.

The insurance institute was unaware that Toyota’s system did not work when four-wheel drive was engaged, a spokesman, Russ Rader, said. But “the Tundra has electronic stability control and it gets the award.”

The Tundra is one of 11 new winners for 2008, joining 23 previous Top Safety Picks. Other winners for 2008 include the Audi A3 and Honda Accord in the midsize-car category and the Subaru Impreza in the small-car category, but only those models that are equipped with optional stability control. With the addition of the Honda Odyssey minivan and the Honda Element to the list, Honda and its luxury division, Acura, now have a total of 7 of the 34 Top Safety Picks. Ford and its Volvo subsidiary have eight vehicles on the list.

Several midsize S.U.V.’s have been added, including the BMW X3 and X5 and the Toyota Highlander. Also named were Hyundai Veracruz models built after August 2007, when changes were made to the head restraints, and Saturn Vue models that will be built after December because of changes being made to a side- curtain air bag that didn’t deploy properly. Information on when a car was built can be found on the frame of the driver’s door.

Another 23 vehicles would have made the Top Safety Pick list if they had better seat and head restraint designs. Those 23 earned good ratings in front and side crash tests, but not in the rear impact test, which evaluates seats and head restraints for whiplash protection.

The institute tested three other full-size pickup trucks: the Nissan Titan, Ford F-150 and Dodge Ram. The Titan and Ram have stability control as an option; the F-150 does not. None of these, however, qualified as a top pick because none received a rating of good for rear impact, meaning their head restraints did not provide what the institute considered good protection in a rear-end collision. Other full-size pickups will be tested in 2008, the institute said.

The institute said that front and side impacts were the most common fatal crashes, killing nearly 25,000 of the 31,000 vehicle occupants who died in 2005, the latest numbers available. Rear-end crashes are usually not fatal, but they result in a large proportion of injuries. About 60 percent of insurance injury claims in 2002 reported minor neck sprains and strains, a common complaint of people involved in rear crashes.

Source: New York Times, 11/18/07

Buying a new car online gets easier

AutoNation wants to take online car-buying all the way to the end of the road.

Instead of just offering a price online, the country's biggest auto dealer is guiding selected buyers through the entire purchase - including arranging the trade-in and delivery of the new car - without them ever having to set foot in a dealership.

"Our whole thing is we've got a vision for what customers want," said AutoNation (Charts, Fortune 500) president Mike Maroone.

About 60 percent of new car shoppers already use the Internet to research cars, according to Jupiter Research, but only about five percent say they're interested in actually completing the sale online.

Web sites like Carsdirect.com automate the price negotiation process, allowing customers to get a firm price but, ultimately, the buying process is finalized by one of its partner dealerships. And it's up to customers to arrange the trade-in or sale of their current car.

At TeamDirect.com, a Web site for some of AutoNation's Atlanta-area car dealers - this is a test process currently involving only Atlanta-area dealers -customers can search dealer inventory and click on a car they're interested in. The resulting "Details" page will list the car's suggested retail price and the dealership's "online price." In theory, there is no negotiation in the online process.

Next to a picture of the car and the price, there's a blue button that says "Buy Direct," for those willing to commit right away.

Customers then fill out an information form and get a call from an AutoNation representative. The Web site explains that the call will be from "a specially trained vehicle specialist who does not work in the dealership."

For shoppers who aren't quite ready to buy a car sight unseen, there are links to, among other things, "Value your trade-in" or "Apply for credit." Customers can also schedule a test drive using an online form.

Both the "credit" and "trade-in" links ultimately end in a form that sends contact information to AutoNation. Again, you've been gently started on your way to purchasing a car.

Once everything's done, customers can opt to have the car delivered to their home or office. The trade-in can be dropped off at the dealership or at a convenient location. AutoNation will accept the online valuation for the trade-in provided the customer has accurately described the vehicle's mileage and condition, said Maroone.

Moving the car buying process, as much as possible, out of the dealership can have huge advantages for customers, said Phil Reed, consumer advice editor for the automotive Web site Edmunds.com, provided shoppers are careful and aware of what they're doing.

"I think that the auto business can really benefit from new sales practices," he said.

Discussing prices with dealers over the phone or through email can allow customers to take their own time to assess the offers and do more research.

The vast majority of car buyers still cut a deal the old-fashioned way, said Reed, which means sitting down at the dealership - often more than one - to negotiate a price in person, a process that can take hours in a single stretch.

"There's just this ingrained feeling that that's what car buying is and it can't be avoided," said Reed.

But customers can already buy most new cars without going to the dealer in person, he said. Most dealerships now have salespeople whose job is to deal with customers who want to negotiate a deal by telephone or email.

Customers have to be careful not to buy a car out of convenience, without first researching alternatives, said Reed.

Rather than accepting a set price from AutoNation, CarsDirect.com, or any Web site, for example, consumers should check general market prices at Web sites like Edmunds.com and KBB.com, Reed said, as well as getting competing prices from other dealers.

And no one should ever buy a car he or she has not personally test driven, said Lauren Fix, author of "Lauren Fix's Guide to Loving Your Car."

You shouldn't rely on reviewers, even ones whose opinion you respect, to decide whether a car is right for you, Fix said.

"Seating comfort and visibility are completely different from you to me and anybody else," said Fix.

Also, always check with your local Better Business Bureau before buying a car from any dealership, she said, to make sure the store doesn't have a long list of complaints.

Source: CNN Money, 11/7/07

Reimagining the Automobile Industry by Selling the Electricity

Shai Agassi, a Silicon Valley technologist who was in competition to become chief executive of SAP, one of the world’s largest software companies, has re-emerged with a grand plan to reinvent the world’s automobile industry around battery-powered all-electric cars.

Others are developing green cars, like the Tesla and Chevrolet Volt. However, Mr. Agassi is not planning to make cars, but instead wants to deploy an infrastructure of battery-charging stations in the United States, Europe and the developing world.

The new system will sell electric fuel on a subscription basis and will subsidize vehicle costs through leases and credits.

“We’re basically saying this is just like the cellular phone model,” he said. “If you think of Tesla as the iPhone, we’re AT&T.”

On Monday, he plans to announce in New York City that he has raised $200 million from private venture partners, including the Israel Corporation, a large Israeli transportation and technology holding company, Vantage Point Venture Partners, as well as a group of private investors including Edgar Bronfman Sr., the liquor magnate, and James D. Wolfensohn, former head of the World Bank. Israel Corporation’s $100 million investment was announced earlier this year.

In an interview Thursday, Mr. Agassi said tests of prototype vehicles would start in early 2008 and the company would begin commercial sales and service in two years. He said he was working to obtain commitments from both governments and carmakers.

Mr. Agassi founded TopTier software in Israel in 1992 and then moved the company to California. TopTier was acquired by SAP, based in Germany, in 2001.

He said his approach was a radical departure from other electric-car ventures that relied on advances in battery technology, which have come slowly.

Instead, he plans to extend the existing electric-power grids with a wide network of intelligent recharging stations in urban areas and supplementing it with a smaller number of automated battery-replacement stations.

Today, giant automobile makers as well as start-ups like Silicon Valley’s Tesla Motors are struggling with life cycle, performance and the cost limitations of battery technology. Tesla, for example, has been delayed several times by transmission-related issues and now says it plans to deliver its first models next year.

General Motors has said it hopes to have advanced lithium-ion battery technology in place to commercialize its planned Chevrolet Volt, but those batteries are still being developed.

There are also issues of safety with existing lithium-ion batteries that have become unstable under extreme temperatures.

“If you listen to the car companies, they suggest there is a fix, but it’s not there yet,” said Stephen J. Girsky, a partner at the investment firm Centerbridge Partners who formerly served as an adviser to General Motors.

However, the new venture, which Mr. Agassi has named, for now, Better Place, would be viable even with existing lithium-ion battery technology, he said.

The economics will be more compelling in Europe, where gasoline is roughly twice as expensive as in the United States, he said. Assuming a life span of 1,500 battery recharges, he said that the energy cost of all-electric cars would be about 7 cents a mile. That would be less than a third of the cost of driving a gasoline-powered car today.

“It’s much easier to transport electrons than octane molecules,” he said. “We’ve already got a grid that goes around the entire world; all we have to do is extend it.”

Mr. Agassi envisions tens of thousands of recharging spots that will adjust for both cost and use patterns. For example, a group of parking-lot chargers at a workplace might recharge a visitor’s car before a regular employee’s car parked for the entire day.

The system will also supplement recharging stations that require about one minute of recharge time for every minute of driving, with a smaller number of car-wash-style stations for swapping batteries. This would make it possible for a driver to go to a station rather than wait to recharge a battery, he said.

Source: New York Times, 10/29/07

Hyundai- hazard lights?

It all started with the ill-fated Excel.

When South Korean automaker Hyundai Motor Company started peddling its first front-wheel-drive model in the US in the mid-1980s, consumers were impressed by the affordable entry-level car, and Hyundai broke sales volume records during its first year selling in the US.

But the Excel didn’t exactly excel. The exhaust and fuel systems, defroster, and alternator were just a few of the components that were the focus of numerous recalls throughout the late ’80s and early ’90s. After that initial phenomenal sales surge, you could now hear crickets at Hyundai dealerships around the country. But perhaps even worse than the company’s plummeting sales was the severe ribbing that Hyundai’s reputation took. The Excel started making appearances on “Worst Car Ever Made” lists, and the company even became fodder for late-night TV jokes (David Letterman famously ripped on the beleaguered brand in one of his Top Ten countdowns). Simply put, Hyundai was faced with a PR nightmare.

At this point, the brand could have slunk back to Seoul, its tailgate between its quarter panels. But Hyundai decided to make lemonade out of its steel lemons, working feverishly behind the scenes to boost quality and once more gain consumer confidence. The company even added on an unprecedented 10-year/100,000-mile powertrain warranty—assurance to buyers that the car wouldn’t fall apart on the turnpike while speeding along in the passing lane.

Today the company boasts nine models, ranging from the entry-level Accent to the higher-end Veracruz. In between are the compact Elantra; the Santa Fe and Tucson SUVs; the mid-sized Sonata and Azera; the sporty Tiburon; and even a well-received minivan (the Entourage—which, oddly, you just don’t see on the roads competing with the Honda Odyssey and the Toyota Sienna, despite its excellent ratings).

And, thanks to its efforts, the brand has definitely made inroads over the last decade in both sales and in public perception. Hyundai was said to be the sixth largest automaker in the world by an Automotive News survey, and it was also ranked 72nd in the 2007 Best Global Brands survey by Interbrand and BusinessWeek. J.D. Power & Associates listed Hyundai as the number-one nonpremium automaker in new-vehicle quality (and only behind Porsche and Lexus overall, even surpassing the all-powerful Toyota brand in the number-four spot). In a September 2007 posting on the Consumer Reports car blog, Jeff Travers chose the Elantra as his top pick for a compact sedan.

Sounds like the Hyundai brand is headed back toward the on-ramp. But according to BusinessWeek, only 23 percent of all new-car buyers in 2006 considered buying a Hyundai, while 65 percent said they would pony up their pennies for a Toyota, 50 percent for a Honda. And that J.D. Power report that lavished praise upon Hyundai’s quality? The same company lumped Hyundai into the “worst reputation” group with Jeep, Land Rover, and Kia.

Hyundai clearly still has a perception problem to combat. Which makes its latest strategic move even more puzzling: moving into the premium market.

A Leap Into Luxury

For a car brand that has prided itself on affordable efficiency, it may seem odd that the company now has two models that approach the US$ 30K mark (the Azera and the Veracruz crossover), as well as the similarly priced new Genesis concept car that debuted at this year’s New York Auto Show. The Genesis, with upscale amenities and a price tag to go with it, is positioned to take on the Lexus ES350 and the BMW 5 Series, formidable competitors considering Hyundai’s history.

But perhaps schmoozing its way into the same crowd as Toyota’s luxury contender and the Beemer is just the type of jumpstart the Korean carmaker needs to change the mindset of the American car-buying populace. By disassociating itself from its former self-imploding-aluminum image and repositioning itself as a premium automobile brand that still offers the great bang-for-your-buck that Hyundai is known for, it finally has a chance to break out of its perceived mold of mediocrity.

Hyundai’s efforts in repurposing its brand is starting with a new print/broadcast/online ad campaign created by Goodby, Silverstein & Partners. Using the theme “Think About It,” the initiative appeals to consumer intelligence by providing transparency into design, reliability, and safety standards in the auto industry. Go to the website (www.think-about-it.com) and you’ll find statistics from the National Traffic Safety Administration (did you know that front-impact air bags reduce driver fatalities by 26 percent?), as well as interesting factoids from unknown sources (such as 12 percent of male drivers steer with their legs “often” or “sometimes,” or Aries drivers are more involved in auto accidents than drivers who fall under any other sign of the zodiac). In one of the early TV spots, viewers are asked, “Shouldn’t a car have more airbags than cupholders?”

That the Hyundai name is not included in the URL (nor in the first phase of the rest of the advertising campaign) is no accident. When Goodby did its initial research using the Veracruz SUV as the guinea pig, according to a May 2007 BusinessWeek article, 71 percent of the people who viewed the car without any Hyundai logo on it said they would buy it; once the logo was shown on it, those willing to drive out of the showroom dropped to 52 percent. Meanwhile, smack a Toyota logo on an unidentified car and consumers are 20 percent more likely to purchase the car.

The Hyundai logo (a slanted “H”) is said to represent two people shaking hands—the company and the customer. Hyundai hopes its revitalized, repositioned brand can result in many more deal-closing handshakes on the lot.

Source: Brandchannel, 10/22/07

Silver Tops Charts as Most Popular Vehicle Color, Black and Blue Are Gaining on Repeat Leader

Around the globe, silver is at the top of the charts as the most popular color for 2007 cars... but other colors are gaining on the perennial leader. According to the annual automotive color popularity data released today by PPG Industries (NYSE: PPG) -- the world's leading manufacturer of transportation coatings -- silver is losing some steam as black closes in on the long-time favorite. In addition, brighter hues such as blue, red and niche market colors seem primed for resurgence.

Globally, silver held the top position as the most popular car color at 31.5 percent (down from 33 percent in 2006). Black jumped to 18 percent (from 15.4 percent in 2006) to take second place, followed by white (12.5 percent), blue (12.4 percent), red (8.8 percent), naturals (gold, orange and brown tones, 6.6 percent), other/niche market colors (5.9 percent) and green (3.8 percent).

In North America, silver also held the top spot over other vehicle colors with 22 percent (down two percent from last year). White, another automotive palette staple, was the second most popular North American color for 2007 with 16 percent. Black came in third at 15 percent -- up two percentage points from last year -- followed by red (13 percent), blue (12 percent), naturals (10 percent), other/niche market colors (6 percent) and green (5 percent).

"Silver is popular with consumers and automakers because it accentuates the styling of a vehicle and looks modern while also having a high resale value," said Jane E. Harrington, PPG manager, color styling, automotive coatings. "We're looking at new interpretations to emerge in tinted silvers and charcoal shades. In addition, hue-shifting pigments can really make silvers look unique."

The rising popularity of black, white and other colors stems from the fashion and interior design industries, Harrington said. "Today's consumers are aware of trends and design, and they expect to see that reflected in the vehicles they buy."

Harrington added that automakers realize the right color "can get you noticed," and said a survey PPG conducted at the North American International Auto Show in Detroit showed more than 65 percent of consumers surveyed said they would select one vehicle over another if more color choices were available. "Consumers want choices, and that will lead to a more colorful automotive future."

Color trends for 2010 - 2011 model years

Looking beyond 2007, the colorists of the PPG Global Design and Color Marketing Team examined cultural and lifestyle trends to create cutting-edge color palettes and special effects that meet automakers' goals for brand identity, durability, workability and cost effectiveness. For the 2010 - 2011 model years, they have developed 105 exterior colors and more than 25 interior color concepts for automakers' consideration. The collection is presented to automakers during PPG's global color show, called "VIEW" this year.

"One of the first things you notice about a vehicle is the color," Harrington said. "This year's color show highlights our viewpoint on color, trends, technology and the global automotive market."

Some new colors in the collection are Cold Stare, a tinted silver with a steel blue highlight; Double Vision, a medium green with a red hue-shifting highlight; Out of Sight, a soft brown with a blue hue-shifting highlight; Quest, a citrus-inspired yellow metallic; and Gleam, an icy green with an intense gold flash.

In addition to color trend forecasting, PPG is on the forefront of creating new paint technologies that enhance automotive design and exceed appearance requirements. This year, the company has demonstrated improvements in special effect pigments. The incorporation of Andaro nanopigment technology by PPG into traditional and alternative OEM coating systems is enabling designers to create new color spaces. These pigments offer higher color saturation while maintaining customer-required durability.

"Our focus for this year's global color show explores effect pigments," said Jerry R. Koenigsmark, PPG manager of color design, North America automotive coatings. "To remain a leader in color design, our methods must be outside the normal mode of thinking. PPG continues to create unique ways of using effect pigments that result in innovative looks and add a new dimension to color and technology."

On the forefront of innovation in decorative and protective coatings and environmental application concerns since 1927, PPG helps automakers advance coatings technologies and application processes.

Source: PR Newswire, 10/17/07

Study: Carmakers' Sites Should Max Out on Multimedia

Carmakers are missing a great opportunity to win over online shoppers by not providing more videos and photos on their websites, according to the head of two-year-old CarGurus.com.

Langley Steinart, founder and CEO of CarGurus.com, an auto enthusiast and buying-information website, made the suggestion following a six-month study of new-vehicle shoppers on CarGurus that showed 62% of the pages viewed were of photos and videos instead of articles, user reviews, specifications or pricing.

Connecting emotionally
"The internet is becoming a more visual medium," he told Advertising Age. "Cars are a very emotional and expensive purchase. Automakers have to connect with consumers emotionally."

Online shoppers "first and foremost want videos," said Mr. Langley, ex-chairman and co-founder of TripAdvisor.com, which was sold to Expedia in 2004 for $210 million.

He said he personally visited 15 auto brand sites he linked to from online ads elsewhere. On the landing pages, he was dismayed to find charts comparing car models. Mr. Steinart said he also found lots of text and lists of vehicle features on the linked landing pages. "You have to fall in love with the car visually," he said. "Are you going to fall in love over braking power?"

Automakers generally do a good job with their online photo galleries, although Mr. Steinart said he would like to see them expanded. "Instead of just five photos, I'd have 50 of the interior and 50 of the outside of the car."

CarGurus.com reports nearly 500,000 unique visitors monthly for all areas of its site, which includes blogs, editorial content and shopping for new or used vehicles or parts and accessories. Mr. Steinart said he had "no way of knowing" the demographics of the shoppers on his site who were covered in the research, saying they "cut across all ages." He also did not reveal how many of CarGurus.com' unique visitors were shopping for a new vehicle and thus counted in the research from March through August 2007.

Different types of sites
Ian Beavis, VP-marketing of Kia Motors America, said consumers have different reasons for visiting enthusiast sites and carmakers' sites. He said visitors to third-party auto sites are generally in the very early stages of buying a new car. "They're basically grazing," he said.

An "inordinate number of people" are car enthusiasts, and as such they are just looking for pictures. "They are not buying a car," said Mr. Beavis. By the time consumers get to an automaker's site, they have pretty much decided on the brand and are getting into details, he said.

Nearly half the visitors to Kia.com configure a new vehicle -- picking options packages or transmissions, for instance -- or look for a local dealer or want a dealer to contact them, Mr. Beavis said. Kia's surveys showed some visitors want more pictures, while others want more data.

'Balancing act'
"It's a balancing act," he said, so Kia aims for easy navigation so consumers can find what they want.

Kia's site has photo galleries once a visitor clicks on a specific model.

Jenny Howell, manager of interactive marketing at American Honda Motor Co., said carmakers need text plus videos and photos. She said photos have traditionally been one of the most popular sections on Honda.com and Acura.com.

Honda.com was redone in July by RPA, Santa Monica. The new site trimmed text and started video introductions accessible on the home page, she said. While photos and videos have always been important, they are becoming more popular due to increased broadband usage.

Source: Ad Age, 10/10/07

Playing the Options for Best Returns

Homeowners have learned that some home improvements pay off handsomely, returning every dollar spent when the time comes to sell.

Similarly, car buyers are finding that optional safety features — stability control systems and side curtain air bags, for instance — can do more than just keep the family safe. Along with options like CD changers and leather upholstery, the extra-cost safety equipment can help owners get a higher price when it is time to sell or trade in the car, according to companies that track resale values.

“Safety equipment seems to be gaining in strength in terms of being an important feature,” said Jack R. Nerad, the executive market analyst at Kelley Blue Book, a publisher of car pricing guides.

When considering which options might return the greatest percentage of their cost, the trick is to look ahead and figure out which features will become standard equipment in three or four years, said Jesse Toprak, the senior analyst for Edmunds.com, an automotive Web site.

For example, Mr. Toprak said, he would not buy a minivan without side-curtain air bags, because in a few years all new minivans will probably have them as standard equipment; without that safety feature, a used vehicle would be less desirable. Likewise, he said, it would be a mistake not to purchase electronic stability control on a vehicle that costs $25,000 or more because it, too, will be standard on more vehicles.

But some options may bring a richer payback. One standout is a diesel engine. In 2005, a shopper who anted up for a Mercedes-Benz E320 CDI, the diesel version of the midsize E-Class, paid $575 more than the buyer of a gasoline E320. Today, the diesel model brings about $5,000 more than the gasoline version when it is sold, said James Clark, a senior manager in the consulting unit of Automotive Lease Guide, which forecasts the residual values used in setting auto lease terms.

A diesel-powered Volkswagen Jetta also commands a premium over its price as an option (about $3,500 on a three-year-old car, compared with $1,200 when new), and the gap may even be greater in light trucks, he added.

Technology features may not provide a good return when selling a used car, Mr. Clark said, because they become quickly dated.

While navigation systems may keep families on course and DVD players keep children from open revolt during a long trip, neither is a good financial investment, according to Automotive Lease Guide. After 60 months a rear-entertainment system that cost about $1,200 on a midsize sport utility may be worth only about $350. That navigation system will be worth about $450 of the $1,750 it cost, the company estimated.

On a 2005 Chrysler 300C, a navigation system cost $1,895. At trade-in, it would net the owner $506 more than a vehicle without it, according to Edmunds.com.

Less fancy items that hold their value better include air-conditioning — figure $700 back on a $1,000 price — and cruise control, which would return about $175 of a $200 cost.

Even if safety items often don’t hold their value as well as some luxury features, Consumer Reports recommends buyers add the optional safety equipment. Rob Gentile, director of car information products for the magazine’s Web site, said that while consumers tend to focus on the options they can see and enjoy, the safety features are proven lifesavers.

“When you are going to sell it on the open market people are going to want and expect these safety options,” he said.

Loading an economy car with fancy or expensive features hoping to make it more valuable is not always a good idea, experts warned. Buyers in those segments are usually looking for inexpensive transportation without frills, Mr. Gentile said.

No matter which options are chosen, consumers cannot expect to recover all of their costs. So they should pick items that they would enjoy or that make them more secure. The value of options will depreciate just like the overall value of the vehicle, Mr. Nerad said.

Source: New York Times, 9/23/07