Dealers facing risks with longer loans

By John Eckberg

Relying on long-term loans to boost slow-season car sales brings big risks for dealerships.

New-car buyers with long leases are far more likely to switch brands and dump dealers the next time they buy than owners who have shorter loans, according to a 2006 study by CNW Marketing Research.

“People still want to trade in a car every three years, but with longer loans, they get further and further out of sync,” said Art Spinella, president of the Bandon, Ore.-based research firm.

Founded in 1984, CNW researches consumer behavior on big-ticket items such as cars by surveying about 160,000 automobile consumers annually. Reports are accurate to plus or minus 5 percentage points.

Thirty-five percent of buyers with a three-year loan remain committed to the car brand, while 25 percent of those buyers will stick with the same dealer the next time they shop.

But a funny thing happens when loans get long: Consumers blame the dealer for the old-car rattles.

In fact, consumers with 72-month loans lose loyalty to the dealer – only 13 percent said they would buy the same car brand again.

Meanwhile, domestic auto manufacturers’ sales are slumping, said Robert K. Riggsbee, founder of Inside Media, a media strategy and buying firm based in Newtown.

Comparing annual sales of domestic brands from July 2005 to July 2006, combined unit sales were down 31.63 percent in this region.