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Cheap Rates Offset Higher Prices

Originally Published in Trailer Life Magazine

Although new-vehicle buyers are paying more for their vehicles compared
to 2003, satisfaction with the dealership’s vehicle prices has actually
increased, due largely to lower interest rates and aggressive financing
incentives, according to the J.D. Power and Associates’ 2004 Sales
Satisfaction Index (SSI) Study released in November.

The study finds that the median price paid for a new vehicle in
2004 is $26,000 — up from $25,500 in 2003. However, the rate of
interest on car loans has fallen from an average of 4.8 percent in 2003
to 4.5 percent in 2004. Zero-percent financing, offered mainly by
domestic brands, continues to play an important role in the automotive
industry. Eleven percent of buyers financed their new vehicle with a
zero-percent interest rate in 2004, compared to 9 percent of buyers in
2003. Also, the average length of a new-vehicle loan has increased from
58 months in 2003 to 59 months in 2004.

“The availability of low-interest financing continues to change
the way consumers pay for their new vehicles,” said Scot Eisenfelder,
senior vice president at J.D. Power and Associates. “Buyers are willing
to pay a higher sticker price as long as the interest rate is low, and
they can afford the payments.”

The study also finds that customer satisfaction with the
vehicle-delivery process has declined. Customer ratings with vehicle
delivery are particularly lower in terms of the cleanliness of the
vehicle, timeliness of delivery and the amount of time the salesperson
spends explaining vehicle features.

“At a minimum, customers expect that their new vehicle will be
clean and in good condition,” said Eisenfelder. “Surprisingly, this is
not always the case. Declining gross margins for dealers are placing
more pressure on salespeople to make the sale and, consequently, they
are too often ignoring delivery. Since delivery is typically the last
contact the salesperson has with the customer, this can have a dramatic
effect on sales satisfaction with the dealership.”

With significant improvements over 2003, Jaguar and Lexus tie to
rank highest in sales satisfaction. Both Jaguar and Lexus make the
biggest improvements in the areas of dealership facility and price.
Jaguar improves its SSI score by 24 points over 2003, and receives
particularly strong ratings from customers for the salesperson. Lexus
improves 14 index points over 2003, leading the industry in dealership
facility and delivery.

Hummer is the most improved brand in the study, increasing 29
points over 2003. Hummer, which expanded into the mainstream market with
the H2 in 2003, appears to benefit from experience and the easing of
typical issues that a new brand faces. For example, Hummer dealerships
have eased up on their pricing compared to 2003, when dealerships were
able to demand full MSRP or above. Hummer customers are also more
satisfied with the size of the inventory.

The 2004 Sales Satisfaction Index Study is based on responses from
39,335 buyers and lessees of new vehicles. The study, which was fielded
in August and September 2004, provides the automotive industry with a
comprehensive analysis of the new-vehicle purchase experience.

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