A Dance Between Dealer and Carmaker on Lifting Sales
Auto sales hit an all-time high last year in the United States, and many analysts expect another record this year.
But in this surge, some automakers are increasing sales by counting new cars bought by their own dealers as sold, raising questions about whether some segments of the auto industry — a pillar of the nation’s halting economic recovery — are as healthy as they appear.
Kia, BMW and Nissan have all encouraged their dealers to buy cars themselves and then offer the vehicles as used models, sometimes with only a few miles on the odometer, internal company memos to dealers show.
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Automakers say they do this with consumers in mind. Nissan, for example, said the tactic helped make more cars available for rent while a vehicle is being serviced by a dealer. And not all automakers engage in the practice. Honda is one that offers little to no incentives for dealer-purchased loaner vehicles.
“We will never pursue artificial sales goals that could hurt resale values and the loyalty of our customers,” said Jeff Conrad, general manager for the Honda brand.
General Motors, the largest domestic automaker, Toyota and Fiat Chrysler offer subsidies so dealers can operate loaner fleets, but their programs are more limited.
The practice has come under scrutiny because of a lawsuit by two dealers who asserted that they were pressured to falsify sales by Fiat Chrysler. No legal challenges are known regarding purchases by dealers.
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Ford did not immediately respond to requests for comment, but dealers said their programs were more modest.
But for those automakers that use the tactic, many analysts see a motivation beyond keeping more loaner cars.
“There is a lot of economic pressure to grow,” said David Lucas, an analyst at Autodata Corporation, a market researcher. While car companies have long used test-drive and rental fleets to manage sales and inventory, such efforts in the end do the same thing.
“They make the numbers look good,” he said.
Exactly how many vehicles are sold this way is not known. Dealers estimate they amount to 10 percent or more of Nissan and Kia sales over the course of a year, and a higher percentage of BMW sales. But in an industry where automakers fight for every sale, the numbers can add up.
The aggressive tactics recall methods used a decade ago, when the industry was also at a peak. Back then, General Motors, Ford Motor and Fiat Chrysler raised sales by selling tens of thousands of cars to rental car companies and offering big discounts like employee pricing.
Those actions ate into profit margins and contributed to the severity of the industry’s eventual crash.
Today’s techniques, by contrast, are harder to spot than those blatant cash-back offers and sales to rental companies.
Last month, Kia Motor increased sales by telling its 755 dealers in the United States they were each cleared to create computerized sales records for as many as nine vehicles from their inventory — without having customers for them.
In a memo sent to dealers on March 14, Kia instructed them to hold those cars for a minimum of 15 days as “test drive” models. After that, they qualify for special discounts of as much as $6,000, and can be offered for sale as “used” cars — including many that have not been driven more than a few miles.
“I think they’re trying to get the numbers up, but I don’t want to speak for them,” said Mike Maguire, general manager of Portsmouth Kia in Portsmouth, N.H.
That dealership is advertising a “used” 2016 Kia Sportage with 14 miles on the odometer.