RUNNING ON EMPTY

The UK car industry is in gridlock. Retail sales are falling, while marketing budgets are going through the roof. Tom O’Sullivan looks at the manufacturers’ efforts to recharge their batteries

SALES COMPARED WITH ADVERTISING

YearTotal UK car salesTotal ad spend

19902 million329m

19911.59 million331.9m

19921.58 million345.8m

19931.78 million407.6m

19941.91 million438.7m

1995 (3 months)525,364 (down 0.7%)113.7m up 8%

The most talked about man in the UK motor industry is not Ford chairman Alex Trotman or Vauxhall’s Charlie Golden. It isn’t even Daewoo’s Corporation chairman, the enigmatic Woo-Choong Kim.

It is Chancellor Kenneth Clarke, the man carrying the can for the collapse of the UK retail market, and the target for some powerful arm twisting in the run-up to this November’s budget.

The UK car market is crying out for help. It fears that if Clarke raises interest rates again it will tip the industry over the edge and no amount of marketing will pull it back again.

Manufacturers are again spending a record amount on advertising this year, but the target of that spending, the retail car buyer, is proving resistant to all manner of inducements. Even good old-fashioned bribery is not proving as successful as it might once was.

Retail car sales are expected to fall at least eight per cent and possibly as much as 15 per cent this year after a fall of six per cent in the last six months of 1994. The company car sector is the only area of real growth but that cannot make up for the collapse in retail.

Vauxhall Motors alone spent 83m last year on marketing and promotional programmes – the bulk of it in the second half, on the retail sector. As a result, volume sales increased by two per cent but its share of the market fell from 17.1 to 16.3 per cent and its pre-tax profits slumped by a thumping 44 per cent.

In short, spent 83m to tread water, symptomatic of a market where “over capacity” and “marketing overkill” have become everyday phrases.

There is no doubt that the lack of the feelgood factor is depressing consumer confidence. But the challenge for consumers and manufacturers alike is not simply to distinguish between the cars but also between the offers – loyalty schemes, finance deals, buyback programmes. It is an undeniable truth that cars last longer than they once did and used motors are now just as attractive as new ones.

“Manufacturers are not just faced with a short-term phenomenon; there are real economic reasons why this situation has developed,” says leading motor industry economist professor Garel Rhys. “Kenneth Clarke took 18bn of purchasing power out of the economy with his November 1993 budget and that has had a serious impact on consumer spending.

“Manufacturers are trying to stimulate the market without reducing the list price of the cars but when that does not work they have to cut prices. At the moment, there is over-capacity; the difference between marques is difficult to identify because all cars are of a similar standard; and when someone has an idea it is replicated by rivals almost immediately.

“The competition in the market is out of the control of the manufacturers,” claims Rhys.

Beyond this, there is still a strong sense that car makers have run out of ideas. The knee-jerk reaction of throwing money at the situation has not worked, yet shows no sign of abating.

Last year, new car sales topped 1.9 million, down on the two million predicted by some manufacturers. Ad spend was at a record 438.7m (Register MEAL) and spend for the first three months of 1995 shows a further eight per cent year-on-year increase. But the sheer volume of advertising is in danger of swamping consumers and leaving them with the same inability to distinguish brands that they face on the street, even though some of the advertising has been good.

Since the start of the year Audi has tried to persuade us that hard-faced yuppies do

not buy its cars, Mazda has tried

to seduce, Citroë has introduced us to Bryan Brown and Ryan Giggs as brand spokesmen, Volkswagen has driven off the edge of a building and Volvo has suggested it is the safest drive in a tornado.

But none of the ads has made a significant impact on sales.

“There are two fundamental dynamics that have to be answered in car advertising – respect and desirability,” says Publicis client services director Douglas Thursby-Pelham, who handles the Renault account. “The aim is to combine the two but you have to establish respect before developing desirability.”

Renault, a marque with a traditional bias towards selling to retailers, has increased its UK market share from 3.4 to 7.2 per cent between 1990 and April 1995. The launch of the Clio in 1991, along with Papa and Nicole, have been essential elements of the Renault success.

“Renault tried to avoid tactical ads and instead concentrated on image campaigns in the same way that BMW has. The Clio ads appealed to a broader spectrum of drivers than was traditional for the small car sector, which targets a young audience. The Papa and Nicole work represented both ends of the spectrum and opened up a wider audience,” says Thursby-Pelham.

But marketing cannot provide all the answers to the problem of reviving retail sales. Manufacturers need to eliminate, or at least reduce, consumers’ fears about major capital expense just as the Government needs to revive consumer confidence.

To that end the big two, Ford and Vauxhall, have acted to take the initial sting out of car buying.

Ford’s personal leasing scheme, Acumen, is regarded as an inspired move in the industry. The scheme offers two-year lease agreements to what it believes is a growing band of drivers who cannot afford to, or don’t want to, buy a new car. The move, which effectively opens up a new sector of the market, has been triggered by a change in legislation that removes VAT from lease agreements.

“It is not an area where we would want to trail-blaze,” admits Volkswagen marketing director John Abbott, “but give Ford credit as market leader for embarking on this programme. We have no immediate plans but it is something we will watch with interest.”

Ford claims the scheme will dovetail with its Options finance programme, which now accounts for more than 50 per cent of all Ford retail sales. But it denies the scheme is a short-term effort to boost car registrations.

“We are not developing this scheme to the detriment of Options,” says Ford Credit marketing director George Wood. “It will be complementary. Ford took the lead, with Options opening the way for a change in culture which enables customers to drive a new car every two years.”

Within days, Vauxhall launched its 50:50 promotion with ads through Lowe Howard-Spink. It allows a retail buyer to pay the first half of the cost of a car upfront and the remainder – without interest – after two years, either in a lump sum or through a finance scheme.

It estimates that up to 50 per cent – about 10,000 cars – of all Astra, Calibra and Cavalier/Vectra sales will come through the 50:50 programme.

Both schemes exploit a gap in the stagnating UK car market. But there is a danger that rather than grow the market they will simply attract existing Ford and Vauxhall drivers.

At the other end of the spectrum, Daewoo, the newest entrant in the UK market, stole a one per cent share in April, its first month, with sales of 1,503. But it bribed consumers by offering the first thousand buyers the chance to swap their cars for new “N” registrations in August. The trick worked but will be difficult to sustain. Daewoo entered the market promising a retail revolution by doing away with the dealer and talking about service rather than acceleration or go-faster stripes.

The initial success of Daewoo is highly significant.

But the fact remains that the whole market is suffering from gridlock. Structural changes (takeovers, mergers and engineering deals) will change its complexion by the end of the century but manufacturers have a short-term need to sell cars and they are on the rack. As it becomes more expensive the returns diminish.

Rhys is certain about the direction the car makers must take. “Over the next 18 months, manufacturers will have to do something to alleviate people’s fear about spending money. They cannot control the market, but if they can boost retail sales by between two and three per cent, they will have an impact.”

Ford and Vauxhall are going some way to reassuring consumers. Others will inevitably follow. Ironically, the car makers are also looking for reassurance but the only man who can provide that is the Chancellor.

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