BMW uses loaner cars to help win the lux­ury sales race

BMW pays deal­ers to add cars to their loaner fleets “Com­pa­nies do things like this all the time to set sales records”

Bloomberg Businessweek (Europe) - - CONTENTS - −David Welch

BMW has cred­ited its No. 1 stand­ing in the U.S. lux­ury car mar­ket to the su­pe­rior per­for­mance of its ve­hi­cles, their el­e­gant styling, and the cod­dling buy­ers re­ceive dur­ing the sales process. But the Ger­man au­tomaker also has been able to hold on to its sales crown thanks to a less fa­mil­iar lure: the loaner car. BMW nar­rowly out­sold Mercedes-Benz and Lexus in 2015, in part be­cause of

pay­ments it made to its own deal­ers to buy ve­hi­cles for their loaner fleets. That prac­tice not only show­cased BMW’s lat­est mod­els to ser­vice cus­tomers but also boosted the brand’s mar­gin of vic­tory in re­cent an­nual lux­ury sales rank­ings.

Other car­mak­ers have used sim­i­lar tac­tics. BMW, though, has been more as­sertive than ri­vals, say peo­ple fa­mil­iar with the mat­ter, and the Ger­man car­maker might have lost No. 1 brag­ging rights for last year to

Mo­tor’s Lexus brand if it hadn’t em­ployed its strat­egy.

BMW in De­cem­ber paid its deal­ers from $1,000 to $1,750 a ve­hi­cle to put new mod­els in their ser­vice fleets, the cars cus­tomers use when their own Z4 con­vert­ibles or X5 SUVs are be­ing worked on. The de­liv­er­ies likely helped the com­pany re­tain its sales lead­er­ship. BMW last year beat Lexus by about 1,400 cars and Daim­ler’s Mercedes by al­most 3,000, set­ting a record for its U.S. sales.

Al­though cus­tomer ser­vice is a big rea­son for the in­cen­tives, the loaner pro­gram likely helped BMW win the sales crown, says Eric Ly­man, se­nior an­a­lyst at auto-pric­ing ser­vice TrueCar. “This is a strat­egy we see across the in­dus­try and es­pe­cially with lux­ury brands,” he says. “That prob­a­bly got BMW some or all of the 1,400 sales.”

BMW says its loaner pro­gram is part of an ef­fort it started about two years ago to im­prove the retail ex­pe­ri­ence, in­clud­ing us­ing deal­ers’ loaner fleets to show off the lat­est styles and crea­ture com­forts to own­ers of older BMW mod­els, com­pany spokesman Kenn Sparks said in an e-mail. “Ser­vice loaner ve­hi­cles are an im­por­tant part of BMW’s cus­tomer sat­is­fac­tion and mar­ket­ing plan,” and the com­pany does pe­ri­od­i­cally give deal­ers in­cen­tives to put new cars in their fleets, Sparks said. “We en­cour­age our deal­ers to re­new their loaner fleet reg­u­larly—the new­est mod­els with the lat­est in­no­va­tions—and have a full range of BMW mod­els on hand.”

BMW typ­i­cally runs its in­cen­tives at the end of ev­ery quar­ter or a few times a year, one of the peo­ple in a po­si­tion to know says. Sparks said in an e-mail that BMW’s loaner as­sis­tance to deal­ers “is known to be among the best in the busi­ness.” Mercedes, which also of­fers loaner in­cen­tives to its deal­ers, does so about ev­ery six months, says Jeff Aiosa, owner of Car­riage House Mercedes-Benz of New Lon­don (Conn.) and brand rep­re­sen­ta­tive for Mercedes at the Na­tional Auto Deal­ers As­so­ci­a­tion.

Lexus al­lo­cates cars to deal­ers to put in their loaner fleets, based on the deal­er­ships’ vol­ume of sales and ser­vice cus­tomers, but doesn’t pro­vide cash in­cen­tives, says Peter Black­stock, who owns Lexus Monterey Penin­sula in Sea­side, Calif. He keeps such ve­hi­cles in his loaner fleet for about 18 months, then they be­come cer­ti­fied pre-owned mod­els, he says.

“Auto com­pa­nies do things like this all the time to set sales records or make claims that they are the best in show,” says Maryann Keller, an in­de­pen­dent auto con­sul­tant. “BMW can beat their chest this year. But you can ques­tion whether they did it on the same terms as their com­peti­tors.”

BMW also out­spent its ri­vals on in­cen­tives to con­sumers, pro­vid­ing an av­er­age of $5,169 a ve­hi­cle on dis­counted lease deals and re­bates, about $600 more than Mercedes and $1,400 more than Lexus, says re­searcher Au­to­data.

An­other mea­sure of U.S.

sales—to­tal ve­hi­cle reg­is­tra­tions dur­ing the cal­en­dar year—shows Lexus on top and BMW third for 2015, ac­cord­ing to data from IHS Au­to­mo­tive. The Ja­panese brand’s tally was 340,392, while Mercedes was 337,288, and BMW’s was 335,259.

IHS doesn’t count all the cars sold to deal­ers as new-ve­hi­cle reg­is­tra­tions, in some cases be­cause buy­ers haven’t taken pos­ses­sion of them yet, says Tom Libby, man­ager of loy­alty so­lu­tions at the firm. But this doesn’t nec­es­sar­ily mean BMW would’ve lost with­out the loaner cars, he says, be­cause sales in late De­cem­ber might not show up in state reg­is­tra­tions un­til the next cal­en­dar year.

Un­der BMW’s ser­vice-loaner sub­sidy pro­gram, deal­ers book a sale im­me­di­ately af­ter be­ing paid the in­cen­tive for a car and keep the ve­hi­cle in their ser­vice fleet un­til they re­sell it, said the peo­ple fa­mil­iar with the pro­gram. BMW also pays deal­ers $200 or more a month for de­pre­ci­a­tion. When the deal­ers re­sell the loan­ers, they dis­count them to ac­count for the miles driven and re­duced war­ranty.

Some deal­ers ad­ver­tise th­ese as “re­tired cour­tesy cars” that are newer than used mod­els but still of­fer big mark­downs. Pass­port BMW in Suit­land, Md., has sev­eral pages of th­ese ve­hi­cles on its web­site, in­clud­ing a 2016 535i xDrive sedan with 9,835 miles for $53,750. “You Save: $10,945,” the ad says in bold black let­ters.

Chas­ing sales gains has had a cost, how­ever. BMW once had the best re­sale value among lux­ury brands, but not in re­cent years, Ly­man says. By 2010, BMW’s resid­ual value on cars com­ing off a three-year lease was 46.1 per­cent of the orig­i­nal price, lower than the 46.7 per­cent for the av­er­age lux­ury brand, ac­cord­ing to TrueCar. This year, a three-year-old BMW has an av­er­age re­sale value of 48.4 per­cent of the new-car price, com­pared with 49.8 per­cent for all other lux­ury brands, TrueCar says. “The lux­ury mar­ket is only so big,” Keller says. “Do they think that if they have more BMWs out there that peo­ple will want to buy them even more? There are con­se­quences for this.”

The bot­tom line BMW was the No. 1-sell­ing lux­ury car brand in the U.S. in 2015. A pro­gram sub­si­diz­ing deal­ers may have helped it get there.

Putting a Yamaha

RMax drone through its paces at a vine­yard in Napa Val­ley

Newspapers in English

Newspapers from Bahrain

© PressReader. All rights reserved.