Volkswagen has boosted incentive offers in an effort to revive flagging US sales. The German carmaker recently decided to go against its principles, using increased customer incentives to kick start moribund sales in the US. The move may work as a stop-gap measure to bolster sales until new models reach the market. However, manufacturers need to implement new strategies to give the US market long-term credibility.
For years, Volkswagen shunned the fashionable practice of customer incentives – the offering of rebates, free options and the like – preferring to focus on the intrinsic quality of its product. However, as its US sales continue to drop, the German manufacturer recently decided to increase its incentives to attract new customers.
Even though it has raised its average spend on extras to $US2,400 per car, Volkswagen still remains far behind the Big Three. Chrysler, well known for its aggressive incentives, has an average spend of $3,857 per car, more than 50% above the February market average of $2,459.
Despite the new measures, 2004 is still a big challenge for the manufacturer. Volkswagen expects its US sales to reach 300,000 vehicles, fractionally down from 302,686 in 2003. According to new figures from JD Power, almost 40% of Volkswagen owners who bought a new car in the first quarter of 2004 switched to an Asian brand. Added to the dollar weakness, important issues like ageing models and a long production cycle have been key factors affecting Volkswagen’s sales.
Incentives are now being taken for granted in the US and it is not unusual for customers to expect large discounts when purchasing a vehicle. However, this once feasible solution has not helped domestic manufacturers to gain market share, and has hit their revenues hard.
Alternative marketing strategies based on a more product-led approach are now emerging. The 24-hour test drive is the latest trend to attract potential customers by allowing drivers to take the car home. Drivers are usually required to leave their own cars at the dealership and have a valid driver’s licence with proof of insurance.
The US market needs to be based on a real and sustained demand if it is to grow consistently. However, as customers have become accustomed to, and now expect incentives, this may take time to come to fruition.
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