As car sales sputter, incentives get sweeter

By John Eckberg

Automakers know you hate the high prices of fuel, so here’s the deal: free gas, zero interest

Zero percent financing for 36 months. Gas vouchers worth $1,000 for every new car bought.

Or zero financing and gas vouchers. Or employee pricing discount plus zero percent financing.

In this era of near-$3-a-gallon gasoline prices, some automakers are again turning to aggressive incentives to move vehicles out of showrooms and off lots, particularly some varieties of gas-guzzling sport utility vehicles.

The common denominator of Toyota’s zero percent interest and Ford’s $1,000 worth of gas? Cash left in the pocket for fuel so that car buyers who are thinking twice about getting a giant vehicle will think twice – and buy it anyhow.

“I don’t know if we’re seeing a different buyer or not,” said Robert C. Reichert, president of Kenwood Dealer Group. His company is a collection of 12 domestic- or foreign-car showrooms in Deerfield, Anderson and Colerain townships and Fairfield including brands such as Scion, Kia, Chrysler, Toyota, Saturn, Subaru and Volkswagen.

“A lot of people still need and want a large car. Maybe they have a big family or travel a lot. Maybe they need to haul a boat,” he said.

“Certainly, there is more concern about gas mileage today than two years ago,” Reichert said. “You’d have to be in a coma to not be aware of what’s happened to gas prices.”

Meanwhile, the incentives might grow even sweeter next week.

General Motors is planning to unveil zero percent financing for 72 months on most of its models, the Detroit Free Press reported Thursday. Chrysler plans to reveal bigger incentives of its own next Saturday.

Going for a 4-cylinder

Tim Rudisell of Ross traded in his 8-cylinder Ford Explorer this week for a 2006 Ford Fusion, a 4-cylinder car. He even bought one with a four-speed manual transmission to further increase gas mileage.

“My wife, Michelle, is a home health-care nurse and drives all over the city, maybe $150 a week in the Explorer,” Rudisell said. “Who knows where gas prices will end, but I don’t see them falling anytime soon.”

With buyers increasingly spurning big vehicles such as SUVs, dealers are scrambling to stem a troubling sales decline by relying on the manufacturers’ offers. Some incentives appear to be working.

“Absolutely, people are responding,” Mike Castrucci, president of Mike Castrucci Automotive, said. “Our sales tracking through the first 19 days of June for Ford vehicles is roughly 5 percent ahead of a year ago.”

Castrucci, which includes the dealerships Mike Castrucci Ford and Mike Castrucci Chevrolet, both in Milford, said Ford’s “Drive on Us” bonus brings a $1,000 Ford rebate, which can be either a $1,000 price break or a coupon for $1,000 in gas.

“People looking for fuel efficiency is one of the reasons we are seeing some of the traffic we are seeing,” Castrucci said. “Some products like Fusion have momentum. The Mustang has been a dynamite seller. I think the future is getting brighter for Ford.”

Jon O’Neal, 25, an Oakley resident, recently bought a 1999 Mazda Miata – not because he wanted a sports car, but because he wanted a car that got decent gas mileage. The EPA estimates 23 miles a gallon in the city; 28 on the highway.

“My last car was a Honda Accord and the wheels were about to fall off,” O’Neal said. “I needed something, and fuel economy was a big thing to me.

“I’m on a budget. I need to save some pennies wherever I can. I’m not looking to spend hundreds of dollars a month on gas.”

Sales decline

Car sales here have clearly slipped as prices for gasoline have risen.

In May 2005, excluding fleet sales, the 46 General Motors dealers in the Cincinnati market sold about 2,025 vehicles, said Robert K. Riggsbee, president and founder of Inside Media, a media planning and buying agency that tracks auto sales and produces a daily newsletter on retail and advertising topics. For May 2006, the same dealers sold about 1,765 vehicles – a slump of 12.8 percent.

The top five of 24 Ford dealers in the designated market area of Cincinnati saw a sales decline of about 7 percent. And for the 13 Lincoln-Mercury dealers in Greater Cincinnati and Northern Kentucky, the decline was even more severe for new vehicles sold in May 2006, when compared to May 2005. Those dealers saw a decline of 30 percent, Riggsbee said.

“If you are a domestic dealer, you’re witnessing an automotive economy which experienced a sharp downturn in new-vehicle sales April, May and June,” Riggsbee said. “April and May of 2006 were tough on the Big Three. Imports fared better and so far in June 2006, new-unit sales for the domestics remain below the previous year.”

According to Automotive News, this year has been brutal across the nation for the Big Three U.S. automakers: GM, Ford and Chrysler.

Those brands got just 53 percent of the market – the lowest monthly share of this year, and down 5 percentage points from May 2005. GM sales were off 12 percent. Chrysler group sales dipped 11 percent, and Ford Motor fell 2 percent, according to Automotive News.

U.S. sales of large SUVs have plummeted from 786,484 vehicles sold in 2001 to 592,699 in 2005 — 193,785 fewer vehicles.

No-interest offers might bring a rebound in sales as savings for consumers can be significant, Reichert said.

Here’s why: An 8 percent interest rate for a $30,000 loan for 60 months brings a monthly payment of $608, or $6,480 in interest over the life of the loan. The same $30,000 loan at zero percent interest over 60 months is $500 a month – a savings of $108 a month.

“Toyota has that offer on some vehicles,” Reichert said. Manufacturers’ offer incentives on “vehicles that need a little boost,” he said.

Some SUV sales steady

It is not gloomy for all dealers – or for all large vehicles.

Kim Borcherding, owner of Borcherding Pontiac Buick GMC, a Deerfield Township dealer in the Kings Auto Mall, has been pleasantly surprised this spring at the number of large sport utility vehicles that have sold in the first half of 2006.

Last year at this time, the Deerfield Township dealership had sold 27 SUVs. This year? The same number.

“I expected sales to be off 10 percent to 15 percent. I was surprised,” Borcherding said.

She thinks that customers are trading in lower-mileage SUVs for a brand-new version. They may not like gas prices bumping on $3 a gallon, but if they need a big vehicle, some consumers think that they have no choice, she said.

The midsized SUV category is another story, though. Last year, her dealership sold 56 Envoys through June. This year, that tally is off by 30 percent to 39.

Many of those former Envoy buyers – the manufacturer discontinued the XL version – are apparently buying a new crossover vehicle, the Pontiac Torrent.

“Some of those buyers are moving down just a little bit to the Torrent because it has better gas mileage,” Borcherding said. EPA estimates 19 miles a gallon in the city and 24 on the highway.

Another reason for the uptick in sales of some midsized SUV models is that many vehicles have been redesigned, said Jarret Hicks, research director for Inside Media, based in Newtown. “People like redesigned vehicles.”

Ron Jospeh Jr., president of Columbia Chevrolet, which is one of 20 dealerships owned and operated by the Joseph Automotive Group, said that while many people are trading in SUVs for cars, some SUV sales remain robust. Brands in the group include Toyota, Scion, Infinity, Acura, Hyundai, Porsche, Audi, Subaru, Cadillac, Chevrolet, Hummer, Buick and GM.

“The new Chevrolet Tahoe and Suburban have dramtically improved engineering,” Joseph said. “A lot of families may raise their eyebrows at the gas prices, but if they have three or four children or drive half the neighborhood to soccer practice – it makes sense to have these vehicles.”

Hicks, who analyzes data from customized local, regional and national sources to forecast the top-selling vehicles and how to target the most likely buyers of those vehicles with media, agrees that many consumers will buy despite soaring gasoline prices.

“Gas prices have had an effect to a point,” Hicks said. “People still need pickup trucks, and they’ll continue to buy them. And fuel-efficient SUVs have weathered the storm a little better.”