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”
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. ts. That practice not only showcased BMW’S latest models to service customers but also boosted the brand’s margin of victory in recent nt annual luxury sales rankings.
Other carmakers have used similarmilar tactics. BMW, though, has been more assertive than rivals, say peopleeople familiar with the matter, and the German carmaker might have lost No. 1 bragging rights for last year to Toyota 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 MercedesBenz 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.
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