KBB Encourages Consumers Not to Wait to Buy Used Vehicles with Higher Prices on Horizon
IRVINE, Calif.
Predicting a 4- to 6-percent spike in used-vehicle values into early next year, Kelley Blue Book came out Tuesday and strongly suggested that consumers make the move now if they're looking to purchase a used model.
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Five years from now, Kelley Blue Book predicts, a 2012 Wrangler will be worth 55 percent of its current, new-vehicle price.The 2012 Jeep Wrangler will hold its value better in five years than any other vehicle, Kelley Blue Book predicts.
The Wrangler has risen to the top of the compact SUV category in separate rankings by ALG and Kelley Blue Book, which predict future resale values.
Five years from now, Kelley Blue Book predicts, a 2012 Wrangler will be worth 55 percent of its current, new-vehicle price. That projected residual value put it at the top of Kelley Blue Book's compact vehicle category, up from second place last year, when the 2011 Wrangler's residual value was projected at 45.2 percent.
Kelley Blue Book named Toyota as it best resale-value brand, with a predicted residual of 40.5 percent, up from 38.5 percent last year. Lexus, with a predicted value of 37.9, up from 36.4 percent last year, was named best resale luxury brand. Jeep, buoyed by Wrangler, jumped to second place in the top 10 brand ranking, up from eighth a year ago. Scion, which didn't make the top 10 last year, climbed to No. 3.
Eric Ibara, director of residual consulting at Kelley Blue Book, says his company is "amazed" at how well Wrangler holds its value — and isn't sure why. It competes in a category with such vehicles as the Honda CR-V, Toyota RAV4 and Hyundai Tucson but is perceived as different from them, he says.
"We have some theories," Ibara says. "It's easy seeing those vehicles competing against each other, but there's not much competition for a Wrangler.
"Part of its popularity, we think, is just being unique."
Kelley Blue Book released its resale brand rankings as part of its 2012 Residual Value Analysis. Its predictions are for five years to reflect the typical length of new-vehicle ownership.
ALG gave the nod to Subaru as its mainstream brand winner at 50 percent, down from 53 percent last year.
Lexus was the top luxury brand in ALG's rankings
ALG released its rankings as part of its 13th Annual Residual Value Awards. Its predictions are for 36 months, the typical length of a lease. ALG would not release predicted residuals for top finishers in its vehicle segments.
Raj Sundaram, a senior vice president at DealerTrack Holdings Inc., ALG's former owner, is a consultant to ALG as it transitions to new owner TrueCar Inc. He says ALG set its overall 2012 model residual projections lower than it had set projections last year and the year before. That's because an uptick in leasing that started last year will result in more off-lease vehicles returning to the market in greater numbers, which is expected to lower used-vehicle prices in three years.
On average, ALG set residual values for nonluxury vehicles at 45 percent for 2012, down from 47 in 2011. On the luxury side, ALG set average projections at 45.5 for 2012, down from 47 in 2011.
"In 2014 toward the second half and in 2015 we do think supply will be a very different dynamic, higher than what we're experiencing this year and next year," Sundaram says. "We have brought our residuals down."
As in previous years, import brands dominate both companies' projected residual rankings.
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Jim Henry More customers are applying online for direct auto loans, auto lenders say. But dealers needn't worry about slimmer finance profits just yet; most customers still get indirect loans through a dealership, data from the Power Information Network show.
Auto lenders say online applications are up because:
• In all industries, shoppers are more accustomed to doing business on the Internet.
• Direct lenders, including banks and insurance companies that own banks, have launched smartphone apps that make it easy to apply for an auto loan;
• Some customers apply for direct loans so they can compare deals with what a dealership is offering.
But when it comes to actually getting a loan, the vast majority of customers still get indirect loans, negotiated at the dealership, in which the dealership earns a share of the interest income.
"Direct is not going to be your core business; it's going to be your side business," said Lana Johnson, vice president for Dallas-based Santander Consumer USA. Santander originates mostly indirect loans via dealerships, but it also generates a small percentage of direct loans -- fewer than 10 percent of the total, Johnson said.
"It's something we're excited about primarily for the future," she said. Online applications for direct loans now make up 15 to 20 percent of total auto loan applications for Santander. Many of those ultimately turn into indirect loans, Johnson said.
Bad in the long run?
In the long run, higher share for direct loans could be bad news for dealerships because direct loans are less profitable for them than indirect loans.
On indirect loans, dealerships can make hundreds of dollars in finance reserves, a dealership's share of the interest-rate profits. For example, public retailer Lithia Motors Inc. made an average of $395 per vehicle in finance reserves in the third quarter this year, up from $340 a year earlier.
On direct loans, dealerships earn a lot less, ranging from nothing to a flat fee of up to a couple of hundred dollars.
In Santander's case, Johnson said, the lender works to avoid "channel conflict" between dealers and the direct channel.
Santander refers online loan applicants to dealerships in the Santander network as "preapproved" shoppers. Many of those get converted to indirect loans, Johnson said at an auto finance conference in Las Vegas last month. She said Santander also keeps customer pricing and approval standards equivalent between direct and indirect loans, to avoid steering customers to direct loans.
USAA Bank, which is part of the United Services Automobile Association financial services company, also refers direct-loan customers to a network of specific dealerships.
Little impact
For now, direct loans aren't making much of a dent. According to the Power Information Network, market share for the category that includes direct loans is down from 2008-09 recession levels.
During that recession and credit freeze, the captive finance companies had trouble borrowing money to make new loans. Market share picked up for cash buyers and direct loans combined, reaching as high as 31 percent in the third quarter of 2009. Today, with the captives competitive again, the "cash" category has fallen below recession levels, down to 22 percent in the third quarter this year, PIN data show.
Even so, Duane Freeman, vice president for national accounts at Bank of America Dealer Financial Services, said at the conference he expects the direct channel to grow: "Only two out of 10 (buyers) have financing arranged ahead of time. It makes sense that will grow over time."
You can reach Jim Henry at autonews@crain.com. Readers are solely responsible for the content of the comments they post here. Comments are subject to the site's terms and conditions of use and do not necessarily reflect the opinion or approval of Automotive News. Readers whose comments violate the terms of use may have their comments removed or all of their content blocked from viewing by other users without notification.View the original article here
Meet Oren Weintraub.
He's a consumers' advocate who, surprisingly, believes in many of the aftermarket insurance products pitched by most dealers to many car buyers.
Weintraub, 43, founded Sherman Oaks, Calif.-based Authority Auto in 2006. It's a nationwide car-buying consultancy that helps car buyers through every part of a transaction.
Weintraub carefully balances his self-ascribed consumers' advocacy moniker with the caveat that he considers many dealers to be his partners. Admittedly, there are a few shady sales folk he says he wants to protect his clients from. But Weintraub believes most dealerships employ good business people.
The loyalty to dealers is understandable given that Weintraub worked at a Ford dealership in Southern California for 12 years. He ran it for four of those years.
Unlike some other car brokers, Authority Auto gets paid only by consumers. Weintraub takes no commission from dealers.
So Weintraub encourages customers to make the best decisions for their personal circumstances when buying aftermarket products.
For example, he asks car buyers thinking about purchasing paint protection to consider whether they park their car outdoors, where there may be harsh weather conditions, or indoors.
Or he helps research a make and model of a used car to find out whether it has known mechanical issues after a certain number of miles. That might influence a consumer's decision to buy a service contract or not.
From his years of running a dealership, Weintraub knows the inside operations.
Now he works for the other side -- the car buyer.
But he's not spilling the beans.
You can reach Jamie LaReau at jlareau@crain.com.
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Silverstone will be responsible for leading Ford Credit's operations in North America, Europe, Asia Pacific and Africa, and Latin AmericaWhen Bernard Silverstone steps into the role of COO at Ford Motor Credit Co. on Jan. 1, he'll bring experience not only in finance but in sales, marketing and global operations as well.
Silverstone, 56, is currently Ford Credit's president of marketing and sales. But in his 32 years at the company, starting at Ford Credit Britain, he has held a variety staff, operations and leadership positions in the United States, United Kingdom and Australia as well as having regional responsibilities for European and Asia Pacific operations. At one time he was chairman of Ford Credit Europe.
In the company's newly created COO spot, Silverstone will be responsible for leading Ford Credit's operations in North America, Europe, Asia Pacific and Africa, and Latin America, the company says. He also will head marketing, sales and brand, business center operations, quality and process management and insurance operations.
Silverstone also will become a Ford corporate officer.
The company created the COO post as a result of Ford Credit's growing global operations, spokeswoman Margaret Mellott said.
Two other Ford Credit managers also are getting new positions effective Jan. 1, Mellott said last week.
• Joy Falotico will take on the newly created role of executive vice president of Ford Credit North America.
• Charles Bilyeu, currently vice president of quality and process management, will take over Falotico's current job of vice president of U.S. sales operations.
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Here's a bit of buzz from vendor circles: Some of the companies that got in trouble last year for using misleading and aggressive sales tactics to sell extended-service contracts directly to consumers could be back at it.
There's a buzz going around service contract vendor circles that some of the companies that got in trouble last year for using misleading and aggressive sales tactics to sell extended-service contracts directly to consumers could be back at it.
Only now they may have branched out into other products, like roadside assistance and wheel-and-tire policies.
According to the Federal Trade Commission, it wouldn't be the first time scammers changed products but stuck with the same sleazy tactics.
Earlier this year the feds cited a company for making "robo calls" to sell extended-service contracts. In a settlement, the company accepted a ban from telemarketing altogether. A few years ago, that same company signed a consent agreement and agreed to repay consumers $185,000, promising it would stop using similar tactics to sell vacation packages.
As fast as regulators write new rules, somebody finds a way around them.
You can reach Jim Henry at autonews@crain.com.
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You may still be raiding your kids’ Halloween bags, but the Big Red Bows signaling year-end deals are already out at luxury-car dealerships.
The bows seem to appear earlier each year. But in the case of Lexus, whose U.S. sales were down 16 percent through October after natural disasters in Japan crimped inventory, the jump-start is understandable.
Lexus will begin its “December to Remember” promotion, with images of cars wrapped up with big red bows like presents, on Friday.
Mercedes-Benz USA and Mercedes-Benz Financial Services have already launched the brand’s annual “Winter Event.” Deals include 1.9 percent financing for some models -- for up to 66 months on the 2012 C300 Luxury 4Matic sedan, according to advertised specials.
Luxury brands prefer lease incentives, cut-rate loans or dealer incentives instead of cash rebates, since cash on the hood cheapens the brand image.
It will be interesting to see how early the bows will pop up next year. By Labor Day perhaps?
You can reach Jim Henry at autonews@crain.com.
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Pat Mercurio: "Smaller ancillary-type products, like roadside (assistance), interior and exterior products, you can gain confidence that way, by presenting those first and then getting into some of the more expensive items like the vehicle service contract."Insurance products such as roadside assistance and vehicle-appearance plans, traditionally considered second-tier products, are gaining top-of-the-menu status among customers and dealers, F&I product marketer Pat Mercurio says.
That's especially true when the products carry a trusted brand name, says Mercurio, president of MerCorp Ltd. of Anderson Island, Wash.
Branded products give customers peace of mind, he says. And when dealers present smaller products to customers first, before introducing expensive items such as service contracts, it helps them gain the customers' trust, Mercurio says.
MerCorp is a small, independent agency that markets F&I products in seven Western states -- Washington, Oregon, Utah, Idaho, Montana, Nevada and Arizona -- plus Hawaii and the U.S. Virgin Islands.
Special Correspondent Jim Henry spoke with Mercurio last week.
What products are hot lately?
Times have changed a little bit, obviously. People are looking for a brand they can trust. A brand like Allstate helps a lot. It gives dealers some peace of mind. It gives customers some peace of mind, as opposed to some company they never heard of.
Don't get me wrong. I think everybody in the industry today is pretty solid. There are some really good companies out there, and we deal with several of them. But it's understandable if people simply want that peace of mind. It's helped us grow, definitely.
Are dealerships pushing second-tier products to make up for money they're not making on loans?
Smaller ancillary-type products, like roadside (assistance), interior and exterior products, you can gain confidence that way, by presenting those first and then getting into some of the more expensive items like the vehicle service contract.
Some F&I trainers are telling people to do that. It's a new approach, to get a better acceptance rate.
Does your company do training?
We don't do generalized F&I training, but we do specific training on our products, on the products that we sell.
Are you moving into new territories, or are you growing by doing more in the markets where you're already established?
If the right opportunity came up with a big dealer group in another state, we could go into other states, but that's really hard to do. In the downturn, we kind of shrank down, mainly to be more efficient. We adapted a bit through the slow times, but since things have started to come back we've been able to build our dealer base.
Do you do business in California?
We were in California, but not any more. California is expensive to do business. It's competitive. It's a different arena. We don't like being part of the price-grinding machine. That doesn't allow for good service. We just weren't comfortable in that atmosphere.
You can reach Jim Henry at autonews@crain.com. Readers are solely responsible for the content of the comments they post here. Comments are subject to the site's terms and conditions of use and do not necessarily reflect the opinion or approval of Automotive News. Readers whose comments violate the terms of use may have their comments removed or all of their content blocked from viewing by other users without notification.View the original article here
Two former executives of Transcontinental Warranty Inc., a Florida company that sold extended-service contracts directly to consumers, were each sentenced to five years in jail for fraud and misleading sales practices.
Christopher D. Cowart, 50, president of Transcontinental, and Cris D. Sagnelli, 46, vice president, were sentenced on Oct. 31. In addition to the jail terms, they were sentenced to another five years of post-release supervision and fined $15,000 each.
The pair pleaded guilty in December 2010. The company is effectively out of business and stopped writing new contracts since 2009, a prosecutor said.
Direct-to-consumer sales potentially take business away from dealerships that sell extended-service contracts, according to the Service Contract Industry Council, a trade group based in Tallahassee, Fla.
Fraud cases also may hurt the reputation of extended-service contracts in general, the group said. There have been several other cases, including the high-profile bankruptcy last year of another direct marketer, U.S. Fidelis in Wentzville, Mo. A couple of former U.S. Fidelis executives also have been indicted on criminal charges.
According to court documents, automated "robo calls" from Transcontinental reached the attorney general of Indiana, a U.S. senator (on his personal cell phone), consumers who had registered on the "Do Not Call" list, and thousands of consumers and businesses who didn't even own cars.
Transcontinental often misled consumers into thinking they were dealing with the manufacturer that made their car, a prosecutor said.
Many consumers believed they were somehow "reinstating" or extending the original-equipment warranty, when in fact they were buying an extended-service contract from an unrelated third party, court documents said.
Prosecutors said millions of consumers received phone calls from Transcontinental, and "tens of thousands" of customers bought contracts as a result of the deceptive sales pitch, from a generic-sounding "Warranty Service Center."
You can reach Jim Henry at autonews@crain.com. Readers are solely responsible for the content of the comments they post here. Comments are subject to the site's terms and conditions of use and do not necessarily reflect the opinion or approval of Automotive News. Readers whose comments violate the terms of use may have their comments removed or all of their content blocked from viewing by other users without notification.View the original article here
