Sunday, October 26, 2014

The New New-Car Buyer We Never Knew
by Michael Sachs

There was a time, not so long ago, when there were two types of car buyers – new-car buyers and used-car buyers, and rarely would the twain meet. However, last month IHS Automotive announced that through the first half of this year, consumers who owned a vehicle that was purchased used were responsible for nearly half of the new vehicles registered to individuals. The report went on to say that nearly 30 percent of those consumers purchased a new vehicle of the same brand as their used car or truck. By comparison, about 50 percent of new-car owners buy the same brand they already have.

I have two theories about why we’re seeing people in the showroom who traditionally buy used cars. Both are temporary phenomena.
  1. The latest safety and entertainment technology in new cars is so compelling that it is drawing interest away from used cars, which lack these latest features.
  2. Banks have loosened their lending standards (and lengthened loan durations) so much that people who were previously ineligible (and could only afford used car prices) can now qualify to buy new.
Regardless of which theory you buy into, the fact is neither one will last forever. Technology we’re seeing in new cars today, like lane departure warning systems and blind spot detection, is truly revolutionary. However, such features will eventually become standard equipment and future enhancements will be more evolutionary than revolutionary (think iPad). If it’s the loose money theory that you believe, then you probably also realize that lending to those whose credit worthiness is low eventually ends when default rates reach intolerable levels. So, we have second owners buying new cars and we think this is a temporary phenomenon. What does this mean for the OEMs? It means that there is a window of opportunity to capture the loyalty of car owners who we would otherwise never see in the dealership, either for car purchases or service.

At our North America Service Benchmark (NASB) meeting later this month, we will be talking about ways to increase retention of second-owner vehicles. Second owners are notorious for getting their cars serviced outside of the dealer channel. In fact, we know from our Consumer Sentiment Survey that first owners are 50% more likely to go to the dealer for service than second owners. Without an initial touch point with the dealer, there is no opportunity to expose second owners to what the dealer service department has to offer. Furthermore, because many used car transactions take place without a new-car dealer involved, second owners are very difficult to reach with messages about, or special offers for, dealer service.

Now, second owners are coming to the dealership to buy new cars. This means that we can finally engage with them, introduce them to dealer service, and stay connected with them throughout the ownership lifecycle. We have a good shot at getting these new customers to come back to the dealer for service, at least initially. The key to making this a long-lasting relationship is meeting (or preferably exceeding) their expectations. From previous blog posts concerning our Consumer Sentiment Survey, we already know what’s important to these customers. If we want to see these customers in the dealership for service more than once, then we need to deliver on their expectations. Keep in mind their expectations aren’t necessarily the same as those of new-car buyers we’re used to seeing. As such, they may need to be treated differently.

Bottom Line: The expanding population of new-car buyers has profound implications for service retention and brand loyalty. You are now seeing a new group of customers in the dealership buying new cars that you, as an OEM or dealer, previously never really had a shot at. This is a unique opportunity. Take advantage of it and convert your new new-car buyers into life-long customers.

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