Buyers, Car Firms Cut Back

If auto makers must get accustomed to more frugal buyers in today's leaner economic times, consumers must adjust to car companies offering fewer incentives. Forecaster Jeff Schuster describes that give-and-take situation at J.D. Power and Associates' 2010 Automotive Internet Roundtable in Las Vegas. Buyers have retrenched and reduced spending, which has increased their savings, he says. They are not

If auto makers must get accustomed to more frugal buyers in today's leaner economic times, consumers must adjust to car companies offering fewer incentives.

Forecaster Jeff Schuster describes that give-and-take situation at J.D. Power and Associates' 2010 Automotive Internet Roundtable in Las Vegas.

“Buyers have retrenched and reduced spending, which has increased their savings,” he says. “They are not using their disposable income as much.”

But auto makers have cut back, too, on vehicle output and the hefty incentives they once offered routinely to offset their overproduction.

“Consumers must get used to auto companies not giving away the farm with big incentives,” says Schuster, J.D. Power's executive director-global forecasting. “Manufacturers have maintained a discipline, and prices have increased overall.”

That creates a “healthier environment” for the auto industry, but it's “causing consumers a little heartburn.”

One reason auto makers, particularly the Detroit Three, dialed down the incentives is that they have kept inventories relatively low throughout the year, with an average 60 days' supply.

“We're seeing a balance of supply and demand,” Schuster says. “If someone breaks rank and starts an incentive war, the industry could go back to where it was, but we don't see that happening.”

After last year's depressed sales of 10.6 million units, J.D. Power projects U.S. light-vehicle deliveries of 11.5 million this year, 12.9 million in 2011 and 15 million in 2012.

“With the discipline it is now showing, if the auto industry can make money in a 10 million sales year, it can really make money is a 15 million year,” Schuster says.

But the post-recession recovery has been slower than anticipated, and “any shock to the market could set back this fragile economy,” he warns, noting that unemployment remains high with 9 million Americans out of work.

The hard times of late have reshaped car buyers' attitudes, says David Howlett, J.D. Power's senior director-consumer insights and strategy.

An age of excess has given way to muted materialism.

“People now want a few things they love, rather than a mass of things,” he says, noting the scaling back started in 2008. “Companies need to develop products that are essential” as consumers look for goods that empower them.

Although car buyers may forego certain frills, they expect quality at all price levels, Howlett says.

Some of his macro-trend customer information comes from “mining” social-media sites to find out wants, desires and needs.

“An area we've seen the starkest movement in the last five years is a seeming breakage from traditional lifestyles,” he says. “People are marrying later and having children later.”

Howlett cites another trend that draws a few light-hearted gasps from certain conference attendees. “Eighty-five percent of college students graduating in 2011 plan to move back home with their parents.”

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