Insights

Auto Industry’s Wild Ride is Getting Smoother
Article

Auto Industry’s Wild Ride is Getting Smoother

Julie Enzweiler,  Automotive Research Director, The Nielsen Company

SUMMARY: In economic terms, the auto industry was hit by the perfect storm: high gas prices, tight consumer financing, plant closings, brand reductions, dealership pruning, employee layoffs, longer vehicle retention, surplus inventory, manufacturer bankruptcies and waning consumer confidence. Despite a 37% decrease in total auto sales over 2008, bright spots persisted: the redesigned Forester revved up Subaru sales while price leaders Hyundai and Kia gained traction from new models. Online media has changed the rules of the road for auto marketing by placing consumer generated media squarely in the driver’s seat.

Unprecedented. Unbelievable. Unfathomable. The state of the auto nation is shaky at the moment, but all is not lost. Offsetting the unrelentingly negative news are 2009 highlights like a 69% spike in Sorento model sales, a 48% increase in Sedona sales, and the successful launch of the economically-priced Hyundai Genesis and Kia Soul, both targeting younger drivers.

Conversely, luxury vehicles that attract middle-aged consumers managed to outpace the market, although the category experienced a long tail effect, a two to three month delay from shopping to closing the sale. Only one domestic car manufacturer—Lincoln—outperformed the market, even though sales remained in negative territory on a year-to-year basis.

Offsetting the unrelentingly negative news are 2009 highlights…

Fueling sales

The Nielsen online panel, comprising 250,000 individuals representing the U.S. online population, detected another hopeful sign for new vehicle sales based on Internet new vehicle shopping patterns. While online new car shopping downshifted by 9%, this represented a mere fraction of the precipitous 37% sales decline, suggesting the existence of pent-up demand. Consumers sought out roadworthy vehicles like the new Ford Fusion, proven gas sippers like the Toyota Prius and Honda Civic, or buttoned up their wallets and opted to maintain their current car or buy used.

Foreign automakers benefited disproportionately from escalating gas prices because of the consumer perception that their vehicles—especially hybrid and diesel models—are more fuel-efficient. German and Korean automakers realized the largest gains in online vehicle shopping activity, posting 1.7 and 2.2 percentage point share increases respectively, while their U.S. counterpart slid 5.5 percentage points. The Volkswagen Jetta and CC models, BMW 1- and 3-series and Mercedes-Benz E class were among the variants driving shopping inquiries.

The biggest disappointment proved to be the basic economy vehicle…

Model behavior

Sport utility vehicles, with some 61 models available, continue to hold the “most shopped” position and rank number one in the U.S. for share of new vehicle shopping. Although activity waned with rising gas prices, consumers appeared to be hedging their bets, shopping longer in the hopes that gas costs would plummet and justify the purchase. And while the government is putting pressure on automakers to reduce these larger vehicles from their fleet, demand at the moment is not supporting this mandate.

The biggest disappointment among model types proved to be the basic economy vehicle, which peaked with a nearly 30% online shopping share in May 2008 when gas prices were at the highest (around $4.00/gallon), and dropped to half that a year later when gas prices declined to about $2.00/gallon.

Upper middle car models like the Fusion, Camry, Accord and Altima maneuvered into the second most shopped segment by April 2009, with hybrid variants moving the sales needle. Hybrids remain an exciting, but emerging segment, as consumers wrap their heads around the concept and take their time investigating the genre. Luxury entrants cruised along with steady sales, experiencing a boost from the Hyundai Genesis introduction. Luxury models attract aspirational buyers who savor the shopping experience and take their time to consider price before taking the plunge, elongating the buying cycle.

Trading places

Rankings of the Top 25 automakers based on online shopping activity wheeled in some interesting changes, with Kia jumping 11 slots from number 24 last April to number 13 in

Kia jumped 11 slots from number 24 last April to number 13…

April 2009. Volkswagen leapfrogged seven spots from number 15 to number eight courtesy of the CC—their most-searched vehicle on the Internet. The redesigned Forester sparked consumer interest as well and elevated Subaru to the number 22 slot, up from 27.

Saturn fell out of orbit, dropping 13 spots to number 23, followed by Buick’s 12 point decline, GMC’s six point downslide and Pontiac’s five point plunge. A heads-up to Volkswagen, the beneficiary of online buzz over the curvy CC: while initial online interest spikes rapidly, it can quickly taper off. The trick is to sustain interest over time and keep the vehicle top of mind with prospective buyers.

Setting your sites

The auto industry enjoys a relatively unusual electronic landscape, with a host of powerful, established third party shopping sites available to consumers like Yahoo! Autos, Kelleybluebook.com, AutoTrader.com and cars.com to name a few. Manufacturer or OEM web sites need to maintain a polished look and feel with robust content to stay in the game, offering complementary information and highly interactive features like build-a-car customization tools, 360° rotating car views, dealer information, engaging games that keep customers returning to the site, virtual experiences, testimonials and incentives.

86% of online shoppers rely on third party sites for price information…

While 86% of online shoppers rely on third party sites for price information, OEM sites are the preferred source for visualizing build-outs, researching special offers and obtaining financing information about tax incentives, special offers and government programs. The combined use of both third party and OEM sites actually enhances the consumer shopping experience, providing complementary rather than competing information.

Value of video

Kia Soul, one of the year’s most successful launches, earned kudos for an exciting web site that features techno pop music, robot animation, a personalized video from the chief designer about his “rhino with a backpack”  vision, a floating picture gallery, build-a-soul feature and “Escape from Hamsterdam” game, which leverages the primary advertising visual—hamsters. Of course, the under $14,000 price tag and 31 MPG green angle helped jump start things.

Nothing engages consumers like real-life clips from owners and test drivers…

Video streaming is playing out across the computer screens of America, with 124% annual growth overall, and a turbocharged uptake rate of almost 200% for Ford videos. At last count, there were more than 80 million videos available on YouTube, and that video library is growing by some 200,000 clips per day. Nothing engages consumers like real-life clips from owners and test drivers sharing their experiences. In addition to posting videos on OEM sites, manufacturers can enhance both reach and impact by pushing out digital clips to social media outlets like YouTube, Hulu, iTunes, Facebook and others.

Ad impressions

Nielsen data show local magazines, national newspapers and local radio taking the biggest hit with shrinking ad budgets, accounting in large part for the precipitous 31% downtrend in total first quarter auto ad spending from 2008 to 2009. Online ad impressions ramped up during Q1 of 2009, stabilizing at approximately five billion impressions per month during the March to May period, with a correspondingly constant spend rate of $35 million per month.

“Intent to buy” is rebounding from an all-time low in the Spring of 2009…

Following a classic advertising paradigm, exposures may indeed be rekindling demand. Nielsen surveys suggest that “intent to buy” is rebounding from an all-time low in the Spring of 2009 to a more historic level as seen in summer’s past. It seems that consumers have been kicking the tires, but doing so via virtual showrooms.

Listen and learn

“Listening” is the new marketing. To succeed in a multi-media world, automakers will need to engage and interact with shoppers, delivering a complete experience from initial contact through post-purchase. In the process, they’ll need to leverage the power of search and social media, developing a cadre of independent reviewers and product evangelists willing to spread the word about their cars, without filters.

Search engines represent the first point of contact for many shoppers, and carmakers would do well to influence the tone of the conversation and their placement on the page one rotation. Deploy the power of Web 2.0 on OEM sites, incorporating quotes, surveys, reviews, testimonials, buyer videos, interactive games, audio and video feedback loops, special offers and incentives that hook the consumer and give them a reason to keep coming back.