Car buyers wait for better deals

Dealers watch sales skid as a public accustomed to zero-percent rates and other discounts balks at the prospect of paying anything close to full price.

April 03, 2005|By Andrea K. Walker | Andrea K. Walker,SUN STAFF

Bargain-conscious shoppers snubbed their noses at Wal-Mart Stores Inc. when it tried to back away from its low-price promise and raised the prices on toys over the holiday season. Department stores also had to rethink their strategy when sales lagged as consumers waited for better deals.

Now, the car industry is feeling the pains of a consumer public that has gotten so used to discount shopping that it often won't buy at regular price.

Car dealers have raked in record sales in recent years by luring customers with tantalizing incentives such as zero-percent interest and rebates worth several thousand dollars.

But now that dealers are pulling back on those deals, they're not getting what they bargained for. Sales were down in the first three months of the year, and experts think consumers are holding out for the next big discount.

On Friday, General Motors Corp. and Ford Motor Co. said new-vehicle sales in March failed to match year-ago levels. But Toyota, Nissan and Hyundai reported record sales last month.

Nationwide, sales of new cars and trucks dropped 2 percent in February after a 1 percent dip in January.

Rising gasoline prices and interest rates, the weather and stale offerings can be blamed for some of the drop, but incentives might be the biggest factor.

"There's a concern that we have pulled sales forward the last couple of years with zero-percent incentives," said Peter Kitzmiller, president of the Maryland New Car & Truck Dealers Association, which represents almost all new-car and truck franchises in Maryland. "There is a concern that people are waiting for the next deal."

The number of cars sold in the state in January increased slightly, to 33,637 cars this year from 33,361 cars last year, according to the Maryland Motor Vehicle Administration. In February, the number dropped to 26,707 from 27,780 in February last year.

Incentives bring in customers who otherwise might not be thinking of buying a car, but they cost money and can squeeze profits.

"The problem is, they sort of feel like incentives are killing the manufacturer," said Alex Hafer, general manager of Koons Chevrolet in White Marsh.

Many customers won't buy cars unless there is an incentive attached.

"Hot models can get away without much incentives," said Bob Schnorbus, chief economist at JD Power and Associates, a global marketing and research firm. "But most other brands come pre-wrapped with some kind of incentive. Everybody has been trying to pull back on that to try and improve their profit per vehicle. It's hard to do when the customer is anticipating that."

Auto rebates rose 50 percent each year from 2001 to 2003, then began tapering off, ac cording to JD Power. In the third quarter of last year, rebates averaged $3,000. This year, they are averaging $1,750.

Automakers and dealers say they aren't concerned about the downward trend. It's normal for the industry to fluctuate, they say. The first quarter is usually slow, and people are more likely to shop in the spring, as it warms up, and in the fall, when dealers bring in new models.

"It's disconcerting, but it's not yet that much of an alarm," Schnorbus said. "It's a little early yet to know if this trend is going to continue the rest of the year or whether it's going to rebound like it has in the recent past."

Koons Chevrolet in White Marsh expects sales to even out.

"I'm optimistic about May, June and July," Hafer said. "It's not a drastic slowdown; it's just been a little slow."

Some cars have been selling well. Midsize sport utility vehicles that use less gasoline than the larger versions do have been popular.

The Chrysler 300 sedan, which has been dubbed the average man's Bentley and was made popular by hip-hop stars, also continues to sell.

But some industry experts think Honda's customers have become bored with their latest models, even if they consider them reliable cars.

General Motors, which has also suffered from the ordinariness of its cars, has announced staff reductions and plant closings to help shrink costs. The company reported Friday that its March sales were 1.3 percent lower than sales a year earlier and are down 3.8 percent for the year.

"We're product-driven," Hafer said. "If you have hot products, you have hot sales. Our car line is lacking cars, whereas Toyota has a strong line. Toyota has more models to offer than the Chevy dealer."

Not all consumers are driven by incentives. Plenty of car deals vied for attention in newspapers and on television when Alicia Rhodes went to buy a Honda Civic last summer. But the 19-year-old accounting student at Morgan State University found she got a better deal by doing her own bargaining.

"You have to know how to negotiate with the car dealers," Rhodes said. "When you're a good negotiator, you come out better than you would with their little rebates."

Gasoline prices also factor into people's choices of cars to buy. Sales of large SUVs, red-hot a few years ago, are lagging.

Interest rates also might be playing a role. People who took out adjustable-rate mortgages might be anticipating rising payments, analysts said.

Bob Frankel said the slowdown isn't hurting all his dealerships. Pontiacs are sitting on the lot, while Cadillacs and Acuras are popular.

"I really don't have the answer to what's going on," Frankel said. "It could be a time blip. We've had some slowdown over the last couple of months, but it's not like there's a major drop that I'm personally concerned about."

Frankel agrees that car dealers and manufacturers have created an "incentive-ized" market, but he said good deals are available. Others think the manufacturers are going to have to adjust to win customers back.

"It is likely they will have too many models sitting on dealers' lots, and the only way to improve them is with higher incentives," Schnorbus said. "Consumers come out of the woodwork when there are incentives."

The Associated Press contributed to this article.

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