When Good Cars Sell Badly
Why do some cars resonate with consumers, while others get passed by as they sit on the side of the dealer's lot? And that lot can be much crueler than a high school dance: For many of these wallflowers, if they sit long enough, they get discontinued.
On Oct. 17, there were reports that Chrysler would ax as many as five current models from its lineup. These models very likely could be those with the weakest sales, such as the Chrysler Aspen and Pacifica, and the Jeep Commander and Liberty. But sales are not always the sole factor when determining a model's success or failure. After all, some models, such as the Chevrolet Corvette or Lamborghini Gallardo, are not built to be high-volume cars. Other models can be sluggards because buyers know that there is an upcoming redesign. The majority, of course, don't sell well because they are poorly conceived, too expensive, unreliable, or just plain ugly.
But then there are perfectly attractive cars that often win raves from reviewers and score well in safety and quality surveys, but, try as they might, still can't get invited to dance.
One example is the Hyundai Azera. The name may not sound familiar—the all-new Azera replaced the even less memorably named XG350 model two years ago. In the 2007 J.D. Power and Associates APEAL (Automotive Performance, Execution and Layout) Study, its owners gave the Azera the highest marks in the Large Car segment, ahead of better-known competitors like the Toyota Avalon and the Dodge Charger.
"The people who discover it really, really love it, and we're proud of that," says Hyundai spokesman Miles Johnson, adding that the Azera is selling well enough to meet expectations. However, Azera sales were down 16%, to 17,361, year-to-date through September.
A problem for Hyundai is, customers almost have to discover the Azera for themselves. Except when it was first launched, it hasn't had much model-specific advertising. Instead, Hyundai has been running ads to promote the entire brand, which may or may not specifically include the Azera.
Sharing the Spotlight
There are several factors that can lead to becoming an automotive wallflower. First, they aren't marketed consistently. Besides the Azera, the Kia Amanti is another example. South Korean parent company Hyundai Motor (HYMOF) controls both the Hyundai and Kia brands, and the two cars share a platform. Both brands are expanding their lineups to become "full-line" manufacturers. That imposes a heavy advertising burden, to acquaint shoppers with all the new models, especially if they occupy a segment and a price position that are new to the brand and different from the brand's recent history.
Even mighty Mercedes-Benz (DAI) can't afford to consistently promote all its models, all the time. Its R-Class model, which combines elements of a minivan, a station wagon, and an SUV, is a wallflower. It's still relatively new to the brand. It's in a new and different product segment. And it has to surrender the advertising spotlight to other new models as they are introduced, such as the C-Class, which is all-new this fall.
In September, the first full month in which the new C-Class was available, C-Class sales were up 15% vs. the year-ago month. The outgoing C-Class was already selling well, with sales up 13% year to date through July. The new model went on sale Aug. 7. Meanwhile, despite discounts including special lease deals, the R-Class continues to struggle, with sales down 30% year to date through September.
Second, their competition, both external and internal, may outshine them. The Saab 9-5, for instance, is fun to drive, well equipped, and especially well engineered for safety, but it competes with European heavyweights like BMW (BMWG) and Mercedes-Benz, which have bigger engines, more prestige, more awareness, more of almost everything.
With prices starting around $35,000, the 9-5 is more expensive than entry-level luxury models like the Mercedes-Benz C-Class. At the same time, while it is less costly than midrange luxury models like the BMW 5 Series, the Saab lacks the upscale equipment to compete with those models, especially six- or eight-cylinder engine options. All 9-5 models have a turbocharged, 260-hp, four-cylinder engine.
Meanwhile, the entry-level Saab 9-3 is the center of gravity for the Saab brand, in terms of sales volume and brand image. Through September, the 9-3 accounted for 70% of Saab's total U.S. sales year to date. The Saab 9-7X SUV was next-highest, at 16%; the 9-5 was last in the lineup, at 13% of the Saab total.
Between the Cracks
Third, automotive wallflowers, from a competitive standpoint, are awkwardly positioned, with the wrong combination of strengths and weaknesses. In automotive terms, a wallflower may be too expensive for a modest competitive set but not prestigious enough for the next-highest group of competitors.
The Volkswagen Passat is an example of a car that in some ways is between two competitive sets. It is more expensive than competitors like the Honda (HMC) Accord. At the same time, it is more affordable but less prestigious than cars like the A4 from its sister Audi luxury division. Through September, Passat sales were down 33% year to date vs. the year-ago period, to 28,583.
A Little Too Different
Fourth, their design might be too radical. Automotive marketers often insist they embrace "polarizing" styling, where people love it or hate it, as long as enough people love it. But shoppers will avoid vehicles with styling that's either too bland at one extreme or too quirky on the other.
Art Spinella, president of CNW Marketing Research in Bandon, Ore., said in a recent newsletter that, after comparing surveys from 2000 vs. earlier this year, "styling" has gained in importance as a reason for purchasing a midsize family sedan, behind "price/incentives," which remains No. 1. "Plain-vanilla styling once was just fine for the buyers of this market segment. No longer," he said.
Brands as diverse as BMW, Nissan (NSANY) and Subaru (SBUOF) have performed bigger-than-usual product facelifts in recent years, to make up for new models that either did not age well or stumbled from the start. The current generation of the Nissan Quest debuted in 2003, with far-out, angular styling, which the company largely undid for the 2007 model year. The more radical Quest sold well at first. In fact, Quest sales doubled in 2004, to 46,430. But the new model did not age well. In 2005, Quest sales were down 13%; in 2006, down another 21%. This year, Nissan has slowed the decline, with Quest sales down 7% year to date through September, to 23,169.
Finally, some wallflowers may not have taken into consideration recent automotive trends. Take large cars and sport-utility vehicles, for example. George Pipas, U.S. sales analysis manager for Ford Motor (F), points out that there is a general downsizing going on in the market. "This has often been reported in the SUV category, but it's taking place everywhere," he says.
Large sedans are being hit especially hard, outside of the luxury category where models such as the Mercedes S550 and Lexus LS460 continue to sell well. Pipas cites third-party market research, which shows that in 2002, someone who traded in or otherwise disposed of a large car like the Toyota (TM) Avalon or Lincoln Town Car bought or leased another large car 65% of the time. In 2006, that figure fell to 57%. Segment definitions vary from company to company, but AutoData reported that sales for what it defines as the Large Car segment were down 15% year to date through September.
"People are more likely to purchase a vehicle that's at least one size smaller," Pipas says.
The same can be said, to a lesser extent, for midsize vehicles like the Toyota Camry or Ford Explorer. In 2002, 56% of midsize "disposers" bought or leased another midsize vehicle; in 2006, it was 53%, according to Pipas.
At the same time, the percentage of those who disposed of a small vehicle and bought or leased another one increased, from 58% in 2002 to 62% in 2006. "Some people would say that's gas prices, and I'm sure that's a factor, but powerful demographic forces are also at work, largely related to the age of the Baby Boomers," Pipas says. "Baby Boomers don't need a vehicle as large as what they did four, or eight, or 12 years ago, because now they're empty nesters."
One thing automotive wallflowers do have going for them: They are often priced to move. For instance, Saab is offering a choice of $5,000 off or 0% financing on the 9-5 sedan, according to the company web site, although incentives may vary by region. Mercedes, which is not well known for discounting, is offering lease deals on the R-Class, and early in the 2008 model year Volkswagen is already offering $309 monthly lease payments on the 2008 Passat, or 2.9% financing.
That's one of the good things about wallflowers—they are usually very happy to dance if you ask them.
See BusinessWeek's slide show for a roundup of today's automotive wallflowers.