Bayerische Motoren Werke AG (BMW) and Nissan Motor Co. have turned to unconventional buyers of their vehicles at times this year: their dealers.
BMW, locked in a U.S. luxury sales race with Daimler AG (DAI)’s Mercedes-Benz, began offering dealers allowances of as much as $7,000 a car on July 31 to boost sales to their demo fleets that are used for test drives. Nissan, pushing to pass Honda Motor Co. in U.S. market share, sells vehicles to dealers for use as rentals, as it did in March at the fiscal year-end.
The actions by at least two of the world’s largest automakers resemble the ways General Motors Co. (GM) and Ford Motor Co. (F) used such practices to lead luxury and car segments in the 1990s. Dealers said BMW and Nissan’s moves also reflect rivalries within carmakers’ operations, as U.S. sales units vie for vehicles with retailers in China and other markets.
“This all comes from tremendous competition,” said Geoffrey Pohanka, president of Pohanka Automotive Group, which owns Nissan and Mercedes dealerships in Maryland and Virginia. “It’s ultimately artificial. The key is to get the car into the customer’s driveway, not to get it from one side of my lot to the other.”
BMW introduced “Specialty Demo Allowance” deals late last month by offering total payments ranging from $2,500 for some 2012 5-Series models to $7,000 for the 2012 7-Series, according to a July 31 notice sent to dealers. The allowances, which also were available for the 2012 3-Series, were kept in place this month, according to an Aug. 14 e-mail to dealers.
The incentives helped BMW narrow Mercedes’s lead in U.S. sales to just 104 vehicle deliveries through July, according to statements from the automakers. Munich-based BMW beat Mercedes last year by 2,715 deliveries, snapping an 11-year reign by Toyota Motor Corp. (7203)’s Lexus brand.
Mercedes’ U.S. sales rose 14 percent to 147,905 through the first seven months of the year, while BMW’s increased 9.4 percent to 147,801. BMW trailed by more than 2,000 U.S. sales entering the month of July. The figures exclude Stuttgart, Germany-based Daimler’s Sprinter vans and Smart cars and BMW’s Mini brand, which aren’t luxury vehicles.
“Reporting vehicles being transferred from new vehicle inventory to ‘demo inventory’ as ‘sales’ may look funny from the outside, but in the context of global competition for product and inventory balancing, it is a widespread practice,” said Greg Goodwin, chief executive officer of Kuni Automotive, which counts a BMW franchise among its 14 dealerships in Washington, California, Colorado and Oregon.
The Wall Street Journal reported earlier about BMW’s demo sales.
BMW’s incentives were aimed at selling down 2012 model-year vehicles to make way for 2013 models, including the all-wheel drive version of the 3-Series and new X1 compact sport-utility vehicle, Kenn Sparks, a BMW spokesman, said August 24 in a telephone interview.
“There was a real move to get as many of the model year 2012s off the lots as fast as possible,” he said.
The company also wanted to ensure it has enough demo vehicles on dealer lots, because it saw a “surge of interest” from its Olympic sponsorships, Sparks said.
China is among the markets contending with BMW’s U.S. operation for allocation. BMW increased deliveries of its namesake brand vehicles in that market by 30 percent to 147,600 in the first half, according to a July 9 statement. Mercedes sales in China rose 11 percent to 105,200.
Nissan asked its dealers to boost vehicle purchases from the manufacturer to use in service fleets in March, according to representatives of 25 Nissan franchises. Most of the dealers asked not to be identified to avoid losing future allocation of vehicles from Yokohama, Japan-based Nissan.
“It’s not correct that we had a program similar to BMW’s,” Travis Parman, a spokesman for Nissan’s North American unit in Franklin, Tennessee, said in a phone interview. “We’ve been doing a rental-car program. Some of the dealers have been setting up their own rental operations, and vehicles have been sold for that purpose. There weren’t any special incentives for that.”
Parman said he didn’t know how many dealers have rental operations or how many vehicles are sold into those fleets.
Dealers’ purchases helped Nissan increase U.S. sales by 13 percent to 136,317 in March, the last month of the company’s fiscal year. Nissan reported that profit in its fiscal fourth quarter more than doubled to 75.3 billion yen, beating the 65 billion yen average estimate of seven analysts surveyed by Bloomberg.
“If you report more cars than were sold, you’re going to report less cars than were sold in some future period,” Pohanka said in a telephone interview. “It’s going to catch up to you. The advantage will be very fleeting.”
Carlos Ghosn, who leads both Nissan and alliance partner Renault SA, is pushing the Japanese carmaker to outsell Honda in the U.S. and eventually take 10 percent of the market, up from 8.2 percent last year.
Nissan edged Honda by 2,196 vehicle sales in the first quarter. The maker of Altima sedans now trails its Tokyo-based rival by 141,864 deliveries, as Honda rebounds from last year’s tsunami in Japan that more severely crimped its production.
Light-vehicle sales in the U.S. climbed 14 percent to 8.43 million through July, according to Woodcliff Lake, New Jersey-based Autodata. The industry is headed toward a third straight year of at least 10 percent gains, the first such streak since 1973.
Automakers generally have resorted to “dishonorable performance” in the past during the final months of the year, George Pipas, a retired former Ford sales analyst, said in a telephone interview.
To fend off Honda’s Accord for the title of the industry’s best-selling car in 1994, Ford sold “an aircraft-carrier load” of Taurus cars to daily rental fleets or at cheap lease rates in December, Pipas said. The Dearborn, Michigan-based automaker reported 42,198 Taurus sales in December, 31 percent more than the average monthly deliveries for the model in the year’s first 11 months.
“We had to hold some back because the numbers got so obscene,” Pipas said. “It was embarrassing.”
In 1998, Ford’s Lincoln brand had a shot at outselling Cadillac for the first time since World War II. Hopes were dashed when GM said its luxury brand’s December sales rose 38 percent, boosting full-year deliveries to 187,343 and beating Lincoln by 222 vehicles.
“We were disheartened,” Pipas said. “Lincoln never was the sales leader before and hasn’t been since. Dealers take pride in that sort of thing. It meant there was nothing to celebrate.”
Months later, the truth came out: In May 1999, GM said it overstated its Cadillac division’s sales for the previous December by 4,773 vehicles and dropped its claim that the brand outsold Lincoln. John F. Smith, then-general manager of Cadillac, notified Ford’s Mark Hutchins, then-general manager of the Lincoln-Mercury division, of the findings and apologized in a letter.
“Back in the day, sales races generated a lot of less-than-honorable programs to hype the numbers,” Pipas said.
While it would be difficult to quantify the value of being the top seller in a segment, it does help appeal to customers, said Ian Beavis, executive vice president of the global automotive group at Nielsen Holdings NV and a former sales and marketing executive at Ford, Kia Motors Corp. (000270) and Mitsubishi Motors Corp.
“People in focus groups do say they justify purchases because a vehicle is popular,” said Beavis, who was the head of sales and marketing at Lincoln when Cadillac admitted inflating numbers. “They like to belong to a successful group. It’s a psychological issue, and it works in reverse, because people will be suspicious of models that aren’t popular.”
Cadillac and Lincoln ceded leadership in annual U.S. luxury auto sales to Lexus, the luxury brand of Toyota City, Japan-based Toyota. Last year’s tsunami disrupted Lexus production, giving BMW and Mercedes the chance to claim the No. 1 spot.
Mercedes said Jan. 9 that it held back final 2011 U.S. sales results from December because it suspected BMW would adjust its own number to be the top seller.
Lexus was “puzzled” by a discrepancy between BMW’s reported sales in July and registrations tracked by Polk, a data supplier that collects such information from state agencies, Mark Templin, U.S. head of Toyota’s luxury brand said in an Aug. 8 interview in Palo Alto, California.
“This whole volume fight for No. 1, God bless them if that’s what they want to fight for,” Templin said. “That’s a difficult place for a luxury brand to be. If you’re fighting for volume -- your stated No. 1 goal is volume -- I think a lot of bad habits creep into the way you do business.”
The Polk data, which shows more Lexus vehicles than BMWs were registered in May, does include models sold to dealers as demonstration vehicles, said Tom Libby, an analyst at Polk. The numbers often vary when vehicles that are sold late in one month are registered in the next one, he said.
“Some manufacturers offer incentives for dealers to sell units into dealer-rental service or loaner service or demo service, and these may not be registered right away,” Libby said in an e-mail. “Over time the sales and registration results tend to approach one another. In the short term, though, it is not that uncommon for there to be slight differences.”
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