ANN WALMSLEY August 1 1988


ANN WALMSLEY August 1 1988



On April 28, the Nissan Motor Corp. ship Nissan Laurel sailed into the Halifax auto port decked out as a floating showroom with 3,500 Japanese-built Nissan automobiles and trucks. Local Nissan dealers set up shop on board, enticing customers with savings of $549 to anyone prepared to buy direct from the ship. By the time the ship sale ended on May 13 in Montreal, the Laurel had at tracted 140,000 visitors and found buy ers for nearly 1,400 new vehicles. Mar keting officials at Nissan Automobile Co. (Canada) Ltd. said that the theatri cal affair was an attempt to increase their slim 3.9-per-cent Canadian market share. Said Ian Forsyth, the company's national marketing manager: "Manufac turers and dealers are willing to do any thing today to get a sale."

Nissan’s campaign was a dramatic demonstration of how far domestic and foreign auto producers will go to attract the car-buying public in the hotly competitive North American market. The fight for consumers’ carbuying dollars has become a fierce contest that car manufacturers—already burdened with large inventories and unimpressive profits—cannot afford to lose. In addition to massive advertising campaigns, more and more dealerships are opening across the country, and those dealers are offering a broad range of incentives, including more options as standard equipment and attractive financing, to overcome buyer resistance.

Target: To stimulate the public’s appetite for new cars, marketers are expanding their target groups to such untypical new-car buyers as women, lower-income young families and retired people. Automakers are now designing cars to fit those groups’ varying needs for economy, size, comfort and safety. That strategy has resulted in a dizzying selection of more than 420 different foreign and domestic car and truck models in Canada. And as the glut of cars grows in Canada, thanks to a dramatic rise in production, some auto analysts suggest that car buyers have never wielded greater influence. Indeed, Dennis DesRosiers, president of DesRosiers Automotive Research Inc. in Toronto, says that when it comes to dealing with vehicle salesmen, the consumer now holds virtually all the cards.

But many consumers and industry analysts say that intensive marketing and even aggressive price-cutting are no guarantee of success with qualityconscious consumers. Kevin Murray, 35, a Toronto lawyer who recently bought a Ford Mustang after 12 years of buying non-North American imports, said that he was not swayed by advertising and promotion; instead he came to his conclusion only after doing extensive research. “I pay attention to road tests and automotive journalism in making my decision,” he said.

One of the most innovative and enduring marketing triumphs in the past five years belongs to Chrysler and its flamboyant chairman, Lee Ia-

cocca. In 1983, the company introduced the Chrysler Voyager minivan, a compact, seven-person hybrid of van and car design that immediately seized the imaginations of many car buyers. With its sleek, pointed lines and front-wheel drive, it became the sportier, less-stodgy alternative to the family station wagon. And it is now the best-selling vehicle in North America.

Toyota, Ford and other manufacturers copied the idea, and the minivans have been the principal cause of the recent growth of the light-truck market. Indeed, last year, light trucks, which include small pickup trucks and four-wheel-drive vehicles including Chrysler’s Magiewagon, helped push truck sales up eight percentage points to 32 per cent, while car sales were down four points, to 68 per cent of the total market. Said Peter Doering, senior vice-president of Goldfarb Consultants, a marketing research firm in Toronto: “It is proof that the romance of the automobile has not died out. And if you own a minivan, you are perceived as being very active.”

Success: The minivan success has helped lend new credibility to other marketing efforts by North American manufacturers and helped to restore the consumer’s faith in their ability to design successful new vehicles.

Since the early 1970s, those companies have battled the view that Honda, Toyota and other Japanese carmakers produced higher-quality, more economical cars. That bias was reinforced when the Ford Pinto and the General Motors Chevrolet Vegaearly domestic subcompacts —displayed numerous design problems. In the case of the Vega, those flaws included oil leaks, rusted bodies, harsh ride, heavy steering and cramped interior space.

Power: Ford acknowledged the issue openly in 1981, when it adopted the slogan “Quality is Job 1.” And in 1982, Chrysler boldly introduced a five-year or 80,000-km warranty on its engine, transmission and other power-train components. Chrysler ads declared that its products were the “best-built, best-backed” vehicles in North America. Since then, nearly all manufacturers have introduced similar campaigns and have extended warranties to as long as seven years to win the faith of customers. Last year, General Motors took the idea one step further and urged its customers to insist on only GM parts when repairing their vehicles, and they have launched a major advertising campaign in support of that initiative. Said Walter McCall, a spokesman for Chrysler Canada:

“Customers today have high expectations of reliability. You have to back the vehicle for an extended length of time.”

According to analyst DesRosiers, that message has had some impact. Customer-satisfaction figures have improved dramatically for North American models in the past five years. But many shoppers continue to avoid domestically made cars. Statistics from the U.S. commerce department show that 20 per cent of all American consumers would never consider buying an American vehicle. And if the domestic manufacturers are to hold on to their market share, they will have to reduce that figure. John Clissold, vicepresident of sales and marketing for Ford Canada, declared: “Conventional wisdom is a tough thing to put down.”

Although quality remains a thorny image problem for most domestic car manufacturers, North America’s dazzling economic prosperity since the recession of 1981 has handed all automakers a lucrative new marketing platform: luxury. Yuppies, the influential and affluent contingent of the baby-boom generation, have built new demand for sporty, expensive cars, particularly West German-built BMWs, which sell for $30,000 and up. Print advertisements from those manufacturers clearly cultivate a sophisticated

consumer. One recent magazine ad for the $110,000 BMW 750iL uses a modest photograph of the car, but includes technical text that could take 10 minutes to read. But according to analysts, image has been more important than engineering in selling such vehicles. Said DesRosiers: “They are buying the car primarily for status. Although the people who make these cars may tell you differently, over cocktails they will admit that sex appeal is high on the agenda.” For those consumers, a car’s glamor is at least as important as its safety and drivability.

Upscale: Recognizing that, Japanese manufacturers have cleverly capitalized on the upscale market by designing cars that resemble their West German cousins. Mazda’s RX-7, which sells for about $30,000, imitates the lines of a West German Porsche sports car that is more than twice the price. The Toyota MR2 copies Italy’s Fiat Xl-9. And Honda and Toyota sedans mirror the styling of other high-priced European models. In North America, GM’S Corsica and Beretta, and even Ford’s Escorts, can be hard to distinguish from some European models in a parking lot. The boldest attempt to incorporate European aerodynamic style has been Ford’s teardrop-shaped Taurus. The car was an immediate hit with con-

sumers when Ford introduced it in 1986. However, the June, 1988, issue of Mount Vernon, N.Y.-based Consumer Reports magazine, while applauding the car’s state-of-the-art design, acknowledged that the Taurus “has proved to be disappointingly unreliable as the miles pile up.”

Programs to market cars to other groups of consumers, besides the upper middle class, often take the form of direct-marketing programs. Manufacturers conduct mass mailings to women, seniors and graduate students, praising models that tend to appeal to those groups. General Motors, for its part, sends letters to new university graduates in Canada each year offering low-interest financing or low-cost leasing agreements on its Cavaliers, Sprints, Fireflys, Cámaros and Firebirds. Its mailings to seniors promote generously proportioned Delta 88s and 98s, Buick Electras and Cadillacs. In all cases, marketing departments are now assuming that consumers are sophisticated purchasers. Said Donald Megaffin, a Halifax-based Honda dealer and president of the Federation of Automobile Dealer Associations of Canada: “Buyers are more knowledgeable than they were 20 years ago. They do a lot of reading and studying before they go out and buy a car.”

Larger: At the centre of the increasingly competitive car marketing business are larger advertising budgets. According to Serge Rancourt,

Ford’s account director at the Toronto office of the international advertising firm Young & Rubicam Ltd., total advertising spending by automakers in Canada alone last year was $162 million, up $40 million from the previous year. And Rancourt said that spending on advertising likely will rise by another $20 million in 1988. Many manufacturers have been inspired by Honda, whose prolific television advertising has helped imbue its products with a sense of its customers’ cult-like devotion. A current advertisement features a teenage daughter who is frantic because her father is off on a long joyride with her car. Another shows a Honda’s taillights glowing in a mock blush as the ad describes the accolades that the U.S. magazine Motor Trend recently heaped on Honda models.

At the same time, automakers now routinely use a variety of price incen-

fives, including cash rebates, low-interest loans and discounts on such optional features as air conditioning and cruise control, to draw customers into dealerships. Automakers originally developed the promotions to clear away oversupply and to combat the negative impact of higher prices. But as competition has intensified, the offers have become commonplace, and many analysts now question their true impact. Said Maryann Keller, an automotive analyst with the New York City-based brokerage firm Furman, Selz, Mager,

Dietz & Birney: “Attempts to use something artificial like rebates or cheap loans to gain a competitive advantage are simply matched by everybody else. Nobody wins anything.”

At the same time, manufacturers’ rebates have cut a swath through many dealers’ profits. GM’s Sprint normally retails for $7,580, returning just a $615 profit to the dealer. Recent rebate promotions cut that margin to only $415. Said Garry Pye, owner of Pye Chev Olds in Truro, N.S.: “On the Sprint, I understand the need to draw in entry-level customers. But $415 is really low.”

And, making life ever more difficult for dealers, the number of franchises across Canada had grown to 4,185 by last April from 3,955 in 1984. Indeed, new franchises are sometimes opening just around the corner from existing ones because manufacturers are so eager to share in elusive consumer dollars. And some experts even say that the saturation point for new dealerships may be close at hand. In Winnipeg, Horst Hasselman’s Gran Turismo Motors Volkswagen dealership, a landmark in the city’s north end for 20 years, closed last May. Hasselmann, who says that he expects personally to lose about $100,000, is an early casualty of growing competition among car dealers. He added that his sales have dropped by 35 per cent since 1985—a setback that he says he could have weathered if Volkswagen Canada Inc. had not persuaded him to move to a gleaming new building last year with double the expenses. Said Hasselmann: “They were telling me I could double my sales. But with the number of vehicles in the marketplace and the strength of the German mark, I still had 1987 stock.”

Brash: Despite the

brash confidence that many carmakers display in their own products and the millions they are willing to spend promoting them, Pye’s critical tone is echoed by other deal| ers. They say they are o concerned that the 8 sharp decline of dealerships in the United States—to 25,000 from 28,500 in 1979—could happen in Canada. Said Kenneth Graydon, vicepresident of the Federation of Automobile Dealer Associations in Toronto: “There is nervousness among the dealers now. How much can the market absorb?” And with Canadians showing increasing reluctance to dig deeply for the price of a new car, car manufacturers may soon find themselves facing an extended period of lacklustre sales.