STRATEGY: The growing power of Hispanic buyers in U.S. sales

hispanic-ad

Lindsay Chappell this week published a fascinating article on Automotive News USA about the growing power of Hispanic buyers in the U.S. market. I summarise it below, you can read the full article here: “Sales to Hispanics outpacing the market”

What’s the weight of Hispanic buyers in the U.S. market?

  • 54 million Hispanics are now living in the United States or 17% of the total population, predicted to grow to 130 million by 2060 or 30% of the total population.
  • Hispanic car buyers in the U.S. are driving overall market growth and could well be the auto industry’s leading growth engine for the next 20 to 30 years. In 2014 retail sales to Hispanic consumers rose 15% vs. 6% for the overall market (Source IHS).
  • Hispanic growth is now increasingly happening in the Midwest, not just traditional powerhouses California, Texas and Florida. The states with the fastest-growing Hispanic populations in the last decade were Alabama, Kentucky, South Carolina and Tennessee. U.S. cities of more than 200,000 people with the fastest-growing Hispanic populations were Charlotte NC and Raleigh NC.

Toyota Corolla USA January 2015. Picture courtesy of motortrend.comToyota has ranked as the top-selling brand among Hispanic consumers for the past decade.

Which brands are winning with Hispanic buyers?

  • The “Big Three” brands of Hispanic-market sales are Toyota, Nissan and Honda. Chevrolet, Ford and Kia follow.
  • Toyota has ranked as the top-selling brand among Hispanic consumers for the past 10 years and has created a dedicated corporate department to this population: the Hispanic Business Strategy Group. Hispanics purchased one of every 4 Corollas sold in the U.S. in 2014 one out of every 5 Lexus IS sold.
  • Nissan brought 3 of its successful Mexico dealership groups to the U.S. to operate stores in Los Angeles, San Francisco and Houston and improve the brand’s ties to Hispanic consumers. Nissan is market leader in Mexico with 26.2% market share, and hopes that retailers from there will strike a chord of familiarity and trust among U.S. residents who moved here from Mexico in recent years.
  • Honda is the No. 1 brand among Hispanic buyers in New York City and Los Angeles.
  • Among Hispanic buyers, the Chevrolet Silverado outsells America’s biggest-selling pickup, the Ford F series.

Hispanic market data

The challenges that come with the growing power of Hispanic car buyers

  • Many Hispanics need – or prefer – to speak Spanish. Many perceive themselves as Hispanic or Latino even after several generations of U.S. heritage, and they look for products and services that specifically address their Hispanic identity. This means additional language and cultural training for salespeople is required for regions not used to a strong Hispanic presence.
  • Last year, 21% of Hispanic vehicle purchases were for a “first vehicle.” For the U.S. as a whole, the figure was just 5%. This means brands get more chances to make first impressions, but dealers must woo uncommitted new buyers.
  • The average age of Hispanics today is 30, compared with 42 for non-Hispanic Americans, meaning a different approach is required to close the sale.
  • The perception of Hispanic consumers seeking entry-level vehicles is becoming out of date. Last year, 24% of Hispanic U.S. households earned more than $75,000, up from 14% in 2000.

STRATEGY: Will self-driving cars trigger the doom of automobile?

Mercedes Self Driving CarThe self-driving car as imagined by Mercedes-Benz

Recently Barclays’ auto analyst Brian Johnson forecast in “Disruptive Mobility” that self-driving cars will eliminate most multicar households, reduce the number of cars on American roads from 250 million to below 100 million and cut U.S. annual auto sales by 40% to just 9.5 million units over the next 25 years. That’s almost one million less than the rock-bottom 10.4 million hit in the midst of the Global Recession in 2009. According to the Detroit Free Press, in these predictions Brian Johnson is in agreement with researchers Brandon Schoettle and Michael Sivak at the University of Michigan Transportation Research Institute (UMTRI).

These findings don’t mean the end of private ownership, but rely on the fact that families with 3 or more vehicles in the household rarely use more than one at a time. According to UMTRI, 84% of households have no trips that overlap or conflict on a typical day. In only 2% of those households were there enough overlapping trips to require three or more vehicles. Johnson says self-driving cars will travel many more miles than personally owned vehicles because they will be used throughout the day for multiple trips.

And this is where I disagree.

Traffic jam. Picture courtesy fastcompany.netCar sharing? What car sharing?

If nowadays families feel the need to own 3 or more vehicles while almost never using more than one at a time, that’s because most car owners cherish the notion of being able, if need be, to go anywhere, at anytime, with whoever we choose. That this option may be unsused and waiting in the garage isn’t the point. It’s there for us to grab, and that’s what we want. It is the very core of private vehicle ownership. Nothing proves that this comfort-habit will change with the arrival of self-driving cars. The fact that the car can drive itself home and be used by someone else while we are busy at work will not mean we will be happy to give it up for the day. What if we suddenly need it? What if all ‘public’ self-driving cars are unavailable at the time because it’s rush hour – like trying to find a free taxi on a rainy day. It’s this anxiety that we are refusing by owning a private vehicle and having it at our disposal, not anyone else. Selfish? Yep. Aren’t well all?

To me, it’s a little similar to saying back in the 1960s that people would lose their private car ownership desire once petrol becomes too expensive. We have not. Granted, ownership rates are falling with millenials that put more emphasis on usage rather than ownership. But let’s pause for a moment to spare a thought for car sharing. In Europe it is starting to show *relative* success, but in the U.S. – the subject of this forecast – no way. We want to go anywhere anytime and not depend on anyone doing so.

STRATEGY: How fracking is boosting US heavy duty pickup sales

Chevrolet Silverado 3500 USA October 2014Chevrolet Silverado 3500

A recent article published on the U.S. version of Automotive News brings to light a fascinating recent development on the new heavy duty pickup market. An ongoing explosion of domestic energy production — primarily from a highly controversial extraction process commonly called fracking — is transforming rural communities across North America. Local farmers and landowners can lease the mineral rights to their property for one-time payments of $4,000 an acre or more. More money — much more, in the form of residual payments — is expected in the coming decades. Result: both the companies involved in fracking in these areas and the newly cashed-up local landowners are rushing to car dealerships to buy heavy duty pickups at an unprecedented rate.

Ram 3500 Laramie Longhorn USA October 2014Ram 3500 Laramie Longhorn

This has prompted Automotive News to declare: “Considering the staggering number of heavy-duty pickups sold in fracking areas, neither factories nor dealers can afford to miss this opportunity. If automakers want to take full advantage, they should precede energy exploration companies into areas where shale plays are happening to make sure their rural dealerships are also up to speed.”

Marietta OH locationMarietta OH

Autonews reporters visited Marietta OH and this is what they saw: “Until 2013, median household income here trailed the nation’s average by more than one-third at $33,445. Yet for more than a year, fracking has sent gushers of cash into the community. Here hotels are full. Restaurants are booming. The city’s median household income shot up more than 20%  in one year to a 2013 estimate of $40,286, according to the U.S. Census Bureau. At Marietta’s auto dealerships, the increase in business has been immediate and dramatic. “Three months ago, we couldn’t get them financed on a $5,000 car,” Marietta dealer Jim Cobb says of one of his recent Chrysler-Jeep-Dodge-Ram customers. “Suddenly, they come in and buy a $60,000 truck and pay you cash for it.”

Ford F-350 Super Duty USA October 2014Ford F-350 Super Duty

Autonews continues: “Before long, according to government estimates, these same changes will come to vast swaths of the continental United States and Canada. Appalachia, the Great Lakes basin, the mid-Atlantic, the Gulf Coast, the central plains, Texas — all are home to shale deposits thought to contain extractable oil and natural gas. It is a boom — with all the good and bad the term entails — that also has hit West Virginia, Colorado, North Dakota and elsewhere. And while fracking’s short- and long-term environmental impact on vital resources such as groundwater remain under intense debate, there is no doubt its economic impact is changing the fortunes of auto dealers as well as their customers.

“It’s kind of a heartwarming scene when you’ve got somebody that’s never bought a new vehicle in their life, and all of a sudden they’ve got a million dollars,” says Jeff Summers, who holds the Buick-GMC franchises in Marietta. “It’s kind of nice to be able to deliver them a brand-new truck, and that’s the first new vehicle that they’ve ever owned.”

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Strategy: Why Jeep is breaking all-time records in the USA

1940 Bantam Jeep BRC40The 1940 Bantam BRC40 is one of the ancestors of the Jeep.

While Jeep had never before in its 73-year history topped 60,000 US sales in a month, it delivered an out-of-this world 70,203 in May, passing Kia, teasing Hyundai which also broke its all-time record this month, doubling Volkswagen and tripling Buick. The Cherokee, Wrangler and Compass nameplates all beat their all-time monthly volume records this month. According to Autonews, Jeep did so with only modest financing and lease subsidies, making it all the more impressive.

1967 Jeep Jeepster1967 Jeep Jeepster

To show how far Jeep has traveled, lets back-track 8 years ago, prior to the global financial crisis, when the market was at a similar level as it is now. In July 2006, Jeep sold 35,831 vehicles in the US, a little more than half of what it sold last month, with a market share of 2.4% vs. 4.4% last month. What is behind Jeep’s sudden and tremendous current success in the USA? Autonews says it’s a matter of ‘right time, right place’…

Riding the SUV wave

Alec Gutierrez, senior analyst for Kelley Blue Book, says “All of the major growth in the marketplace seems to be isolated in the CUV and SUV segments. Given this is Jeep’s entire portfolio, they seem to be benefiting more than anybody else. No brand has gained more market share in the USA since 2010 than Jeep. And the brand has accomplished the feat with modest fleet sales.”

2014 Jeep Cherokee2014 Jeep Cherokee

The role of the new Cherokee

Jeep’s impressive growth streak can be pinpointed partly to the addition of the 2014 Cherokee mid-sized SUV which replaced the lacklustre Liberty at the end of last year. Albeit controversially designed, the new Cherokee immediately stroke a chord with US buyers, selling over 10,000 units for its first full month of sales last November. It never dropped below 5 digit sales figures since, adding up to 92,881 sales so far and will pass the 100,000-unit milestone in June, only 8 months after launch. Don Lee, president of Lee Auto Malls which operates two Chrysler-Jeep-Dodge-Ram stores in Maine, said “The new style of the Cherokee is so dramatically different than previous Jeeps that it’s bringing a new buyer into our showroom that we haven’t seen before: they’re a younger buyer than the typical Jeep buyer.”

1974 Jeep Cherokee1974 Jeep Cherokee

Quality perception

According to Autonews, Jeep brand head Mike Manley said the average age of Jeep buyers has dropped nearly 2 full years in the past year. He declined to reveal precise numbers. Meanwhile, in a survey released two weeks ago by ALG, the analytics division of TrueCar, millennials who had purchased a vehicle placed Jeep third in perceived quality among all automotive brands, behind only Honda and Toyota. ALG defines millennials as people born between 1979 and 1994. Among all respondents, Jeep was the highest-ranking Chrysler Group brand for perceived quality and was above the industry average.

Blake Helfman, new-vehicle sales manager at Helfman River Oaks Chrysler-Jeep-Dodge-Ram, confirms this: “We’re conquesting buyers from higher-end vehicles. I’m getting trade-ins from Mercedes, BMW, Range Rover, Lexus-type vehicles because people come in and typically, they leave with a similar quality vehicle at a much, much lower payment.” For instance, the Jeep Grand Cherokee’s sticker starts at US$30,390 while the Mercedes M class starts at $48,715.

2015 Jeep Renegade2015 Jeep Renegade

Production constraints

In addition to the record US sales in May, Jeep sold 30,004 vehicles overseas, eclipsing the 100,000 monthly units global mark for the very first time. “A number of our international markets are constrained because of the demand we have in the U.S.,” Manley said. This didn’t prevent the Grand Cherokee to break into the Australian Top 10 for the very first time… The brand’s 5 year plan calls for building Jeeps in Asia, South America and Europe to feed domestic markets there. The Jeep Renegade, a new subcompact SUV that will come to the US in 2015, is scheduled to go into production in Europe earlier, before the end of 2014. “The sooner that we can bring that international manufacturing onstream, the more product that we can use to continue to feed the US dealers,” Manley said. Manley said the brand remains on track to sell 1 million Jeeps globally in 2014 for the first time in its 73 year-history, but further growth will require more production. “If it continues this way, we’ll naturally bump into the production capacity limits,” Manley said.

Arguably a nice problem to have.