Car manufacturers in the United States have been in a slump in the past years. They have suffered from decreased sales yearly, prompting them to come up with schemes that may boost their sales for some time and hopefully gain the profit from excess inventories and old models that they have presented.
General Motors have come up with ideas that set the trends in incentives for years. In an effort to boost their sales and chalk up more income, they have presented to the customers with the best credit ratings offers of 0% financing deals, igniting battles with other firms like Ford, to offer the same kind of deals to their customers.However, as the effort proved to be a success in the early goings of the incentive project, it was proved to be a plan not too good for the car manufacturers. Cross checking with their income statements, they have noticed that although they have been gaining sales, it was evident that the profit margins have been decreasing through the months.
This again, prompted action for the car manufacturers.Early November of 2002 featured a whole new different approach to attract customers to car showrooms. It is a deal that they may really find attractive: no down-payments. Down payments in the past have been known to be at least $1,000. This large sum for may have prompted customers not to snag deals with car manufacturers or dealers because of such a large sum that they would have to shell out in order for them to get a car as soon as possible.
However, with the new deal, customers would not pay the down payment but would still get the car they wanted. (Freeman. 2002)Freeman (2002) also reported that General Motors have extended the offer they presented, the “Zero, zero, zero” deal which entitles customers with a no down payment, no payments for 90 days and the best part for customers’ eyes is that they won’t have to pay the interest for the life of the loan. Meanwhile, in the same line of business and effort, Ford offers the “Free Ride” bargain, giving a “no money down, no payments” for 90 days, kind of like General Motors have initiated.All these steps taken by the car manufacturers are those with relation to their company’s Customer Relations Management. This is an information system designed to help the companies that use them to determine the consumer preferences, factors that may affect demand, and other specific details that may affect their sales and ultimately their profit. The information gathered and analyzed would then be made available for the people needing the type of information. For example, the marketing department would access the database for identify their target market and therefore, help them determine the appropriate marketing strategies that would help the products they would release.
(Williams. 2006)Williams (2006) also states the following:Another goal of the said information system is to maximize the profits of the company by identifying specific details like individual employee-customer relationship, its factors, and the end-product of sales. This would help by giving the company an idea on how much employees are needed to maximize their profits by accommodating as much of the customers, or market, at any specified given period of time.Lastly, the customer relation management system also aims to understand the customers more. This would help us determine their preferences in products and the things that they find disagreeable in our service or goods. This would also promote better service for the customers as we begin to understand the way they think and act to certain factors of the industry.However, in this case of General Motors and other dealers/manufacturers such as Ford, we can see a different side of the system.
The negative sides of the customer relation system begin to surface and manifest that it may also exist. As we can see, amidst the recent decline in the sales and marginal profits, the manufacturers still tend to compete through the system by increasing incentives in their car deals. They have given discounts, even gave the customers a free car for 90 days.
General Motors opted to withdraw its down payments and settled for the receipt of the payment after 90 days and would pay no interest in the life of the loan. But as we look more closely, the interest is still there as the payments are then divided to the remainder of the payment period. The 90 day incentive just gave the customers enough time to gather the necessary money to pay the remainder of the loan.
That’s why sales analysts advised the public to see the clearer picture of the loan before venturing in it.The manufacturers, through the course of time, are in a rising dilemma on how to increase their declining sales and still have not found any answer to their problems. They have given dealers incentives, even customers enjoy the benefit. The public, at the same time, faces the dilemma of purchasing a car with bigger monthly payments at the end of 90 days and would also suffer the consequence of bigger interest rates accompanied by the payments.
This is a really bad situation for both sides. It was desperation that made the manufacturers devise this plan and it is backed by the idea that it was always better to spend heavily in the incentives part as long as they would not have to close down a factory or plant. A closed plant would deal them a zero-profit outcome, while a heavily-laden incentive program would still generate profit, although at a lower level. A lower profit is always better than no profit at all.The company’s side also turns up their problems. They would be put to risk of a deal that a customer may not be able to pay.
This would put a possible investment into a waste. They would also be prone to lower rates given by the competitor, leading to a lost competition. Furthermore, the consumers changed their preferences too quickly that they have been forced to produce different and more advanced models at a faster rate.
This move left the older versions of the company to be less in demand but should still maintain the price they had before, since they have not yet achieved the required revenue to meet the costs of production and marketing costs of the model. They have been replaced but would not be as attractive as the more innovative and luxurious models that are dominating the market more recently. The companies then went into a rampage in giving the customers the incentives that would attract them and eventually buy the older versions so that the companies would be left with fewer stocks of the old models. Furthermore, they would then be required to shift into the higher production of newer models since they would then meet the profit limit to say that a specific model has achieved “breakeven” status. In the future, they still face the same problems as each of their competitors release a more luxurious and attractive versions of their own car that it is becoming a dilemma for customers what car to acquire, given the incentives that each company offers their clients.And now, we venture into the dilemma of the public. After the monster incentives that the car manufacturers are opening up for them, it would seem like a golden opportunity to go and get a car, although this would prove costly to them in the end.
They would be lured to a purchase by the incentive of “no down payment” by itself. However, this would also prove to be of their benefit as they would be able to purchase a car.But the bottomline is that the company and the public are both at risk in these kind of investments. The offering of seller credit does not necessarily mean that they would have to shelf their previous proposals of seller offering credit. These two things does not negate each other. Rather, they seem to feed in each other’s weaknesses. The weakness of one may the power of the other. As an example, Volkswagen did not venture into the current strategies of its competitors, but they took a different route.
They have seen the weaknesses of the other manufacturers’ plan that they only made a change in the giving of incentives to dealers who would meet the quota. As a result, dealers are in a competition to sell more of the products to meet the required output for a specific month.The two options really does not negate each other as they equally generate the same risk both for the company and the consumers. The dwindling sales in the automotive industry, especially cars, may be attributed to the fact that the companies faced a gold mine in the production of sports utility vehicles (SUVs).
In digging this gold mine however, they faced a quicksand in the industry of cars. The sudden shift in the demand of consumers for the SUV left the cars industry to be almost at the bottom of the cookie jar, much like the crumbles there. To be able to rejuvenate the cars industry, they must push for lower production costs and more proposals for marketing strategies that may not involve zero-financing for customers as we have concluded that both the customers and the manufacturers face a bigger problem afterwards.
(Freeman. 2002)Offering seller credit does not offset the negatives associated with the seller offering credit. In fact, they may be contradictory but they complement each other with the fact that since not all manufacturers go by the option of offering seller credit, they do offer the seller offering credit. So technically, they tend to reinforce each other by providing each a market of its own. Financing your customers would still be the endpoint and actual motive of the programs, which means that in the end, the customers would then have to carry the burden that their monthly payments may have to be larger than what they should be without the financing that the manufacturers and dealers are offering them.
The offering os seller credit simply reinforced the idea that the manufacturers are willing to give up part of their profit in order for them to reinforce profit margins that have been slowly and constantly dwindling these past years. Maybe that was really the actual point of the manufacturers and dealers that have been dangling the offers. Simply put, it was just to give the consumers a choice of what kind of financing and incentive they would choose for the price of getting a car, and for the dealers: the price of what they would give-off to earn the well-protected profit margin that has been declining.
Generally, the car manufacturers are in deep trouble nowadays, especially that the consumers they have tried to predict throughout their lifetimes have shifted their preferences to the SUVs which the car company themselves has honed into the “perfect vehicle” for people. These so-called “perfect vehicles” are actually the perfect weapon of destruction for the profit margins of the companies. And now each company are at each other’s throats in closing out deals with consumers with their cut-throat offers? They may constantly, and eventually, find the perfect financing offer that may negate the negative effects of both seller offering credit and that of offering seller credit, but they may also find themselves in deeper trouble, because as stated earlier, the margins have been dwindling that in the near future, if they do not have any marketing strategy to negate that of the boom of the SUVs, they may find themselves with less cars and more closed plants.