In the past six weeks, the market has felt a big shift in the types of incentives used to motivate new vehicle buyers. In recent years, with a strong market and plenty of shoppers on the field, the incentive game has been focused on steering would-be buyers into higher-level trim packages or specific models that were overstocked. These spiffs are ‘product-based’ incentives—all about the vehicle.
Now, automakers see the need to pivot to incentives that help build active shopper confidence in the purchase process. As Brad Korner, general manager of Rates & Incentives at Cox Automotive, the parent company of Kelley Blue Book, recently noted, “It’s been a long time since the auto world has been this dependent on ‘needs-based’ incentives.”
It’s not about the cash
In this scenario, the industry seeks to reassure buyers that no matter their circumstances, there will be assistance available in the form of deferred or forgiven payments and financing as low as 0% for extended periods. In addition, they are working on noncash incentives that have value by streamlining the purchase process.
Beginning in mid-March, Korner tells us, automakers and dealers began working to create this collection of new incentive strategies to help keep the fragile industry afloat, incentives you’ll want to consider if you’re heading into the market for a vehicle. Here is a quick roundup of current incentive options you’ll want to seek out:
These are the traditional incentives most car buyers are already familiar with. And as unemployment grows and the economy slows, every new vehicle purchase will be approached with a new level of careful consideration. Recent research indicates advertising deals focused on pricing and special financial incentives have become more appealing to shoppers, while deals focused on specific product and technology attributes have dropped in importance.
In this environment, automakers and their dealer partners have put in place a collection of incentives to address affordability concerns: 0% financing for up to 84 months is the new norm, while payment deferrals and forgiveness are common. And these offers are not being narrowly applied to specific vehicles or models, but rather offered widely across brands. There are also more opportunities to shop and evaluate financing options using captive and third-party lenders (banks and credit unions) from a mobile device or computer.
Recent data suggests 0% offers are driving traffic and helping close sales. The percent of vehicles purchased with no-interest financing has increased from 2.6% in January to nearly 20% in mid-April, according to the Cox Automotive Industry Insights team. And the survey indicates 69% of consumers would be likely to purchase a vehicle sooner than planned for the right offer or incentive. At the end of the day, everyone wants a sweet deal. The good news: In addition to the new payment protection and low-interest rates, more traditional incentives are still readily available.
While not cash or special financing to help lower the purchase price, new shopping tools are making the entire process easier. And recently, we can all use a bit of that. They’re not money deals, per se. These digital retailing incentives have value in making the transaction easier and seamless.
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There are plenty of smart online buying tools available and many have been upgraded in the past month. Fiat Chrysler’s FCAU, -1.56% brands (Jeep, Ram, Dodge, etc.) offer a newly improved Online Retail Experience, which is part of their “Drive Forward” campaign. Their goal is to deliver a true shop from home experience.
GM GM, -1.05% is also in on that action, with Shop-Click-Drive. And there are plenty of third-party shopping portals such as KBB.com’s Accelerate My Deal designed to help consumers understand and negotiate true pricing and payment ranges online, earlier in the process. Likewise, dealers now offer pricing and payment tools to help consumers view, engage, and structure transactions from home.
The goal is to deliver price transparency and streamline negotiations—the part of the process consumers hate the most. More than ever, easy, intuitive shopping experiences are an important incentive every buyer should want.
Delivery incentives are the new kids on the block—fresh, customer-focused services that are quickly becoming must-haves. Carvana CVNA, -6.90% and Vroom were the first-movers in the home delivery business model. But now, delivery on demand is available from many dealers, almost out of necessity. Dealer Home Services by Kelley Blue Book has been embraced by more than 10,000 dealers already. Through that portal, buyers can do video walkarounds, arrange test drives, and arrange deal-closing and vehicle delivery without leaving home. These new convenience-oriented incentives help bring dealership capability directly to the customer, following safe, social-distancing guidelines. Many dealers offer free vehicle pickup and delivery as a service appointment perk.
This is the new frontier for automakers and dealers alike. From top execs to dealership general managers, everyone is rethinking the car-buying process. The idea is to add convenience for customers within social distancing guidelines. Those who create the best, most-appealing process will certainly have an advantage.
Today, tough new market conditions are forcing automakers and dealers to rethink the entire sales processes. However, we suspect some of these incentives will not live long. Extreme financing—0% at 84 months—won’t last forever, particularly when interest rates move up. More traditional incentives like cashback or lease deals will begin to outnumber payment deferral and forgiveness as the economy rebounds.
But we also suspect improvements to the online shopping experience, which are the new noncash incentives today, will remain. The car buying experience has been ready for a shake-up for a better part of a decade now. The current economic jolt is forcing it to happen.
See all the incentives including 0% and deferred payments at KBB.com.
This story originally ran on KBB.com.