Image via WikipediaRobert Snell / The Detroit News
General Motors and Ford have dropped their fur-lined gloves and are engaging in one-upmanship to distinguish their luxury brands in a competitive segment of the market.
Ford Motor Co.'s Lincoln and General Motors Co.'s Cadillac are dangling free maintenance deals, a perk long offered by rival import BMW, but dropped by luxury automakers Lexus, Audi and Mercedes-Benz in recent years amid high costs.
The goal is not to boost sales during the short term in a soft luxury market, but to distinguish the premium domestic brands from their foreign rivals, raise brand awareness for Lincoln and Cadillac, and cultivate long-term repeat customers.
Their efforts come as the luxury car market has posted single-digit percentage gains and luxury sport utility sales have increased 30.7 percent in the first half of the year, despite a weak economy. Other vehicle segments, such as pickups and sport utility/crossovers, have notched double-digit increases this year, while the overall market has climbed 16.7 percent.
The domestic brand incentives sparked mixed reactions from dealers and industry analysts, who said free maintenance perks could help them compete with foreign rivals, but likely won't boost sales in the short term.
"It's a customer comfort sort of thing and a little bit of exclusivity," said auto analyst Joe Phillippi of AutoTrends Consulting in Short Hills, N.J. "You're not going to get this at a Chevy or Ford dealership. Someone's not going to buy a Cadillac or Lincoln because they think the free maintenance deal is better than the other guy's. But it's going to make them happy while owning the car."
While Cadillac and Lincoln lag Lexus, BMW and Mercedes in sales, the domestic brands were up 33.3 percent and 7.5 percent, respectively, through June, compared with the 9.4 percent increase in the overall luxury segment.
Dealers encouraged
Some dealers are encouraged and hope the perks trigger an increase in showroom traffic at a time when retail sales remain sluggish amid a weaker-than-expected recovery in the auto industry.
"It will make it a little easier to get customers in the door," said Justin Osen, a salesman at Don Gooley Cadillac in St. Clair Shores.
Last month, Lincoln unveiled a deal offering free scheduled maintenance for three years or 45,000 miles for those who buy or lease a new 2010 or 2011 Lincoln. Cadillac followed three days later, upping the deal to four years or 50,000 miles on 2011 models.
The Lincoln program, which expires Sept. 7, covers oil changes, tire rotations, routine inspections, engine belts, hoses and replacement of wiper blades and brake linings. The Cadillac offer will be standard on 2011 models.
Chrysler Group LLC doesn't have any luxury brands and declined to comment whether it has any similar perks for its lineup.
The Cadillac and Lincoln offers aren't the right tool to lure buyers or close sales, said Lincoln dealer Tammy Darvish, vice president of DARCARS Automotive Group in Silver Spring, Md.
"I don't think it will really have a lot of impact," she said. "People don't come in and buy a car because of free maintenance."
But the offer could convince a customer to stay loyal to a particular dealership and help the dealer build a relationship with the customer, Darvish said.
"I prefer to go into a relationship with longevity at the heart of it," she said. "Not just a quick 'come in and get a free oil change,' and we'll never see you again."
The timing of the offers coincides with automakers clearing out 2010 models and introducing new models. For Cadillac, the first vehicle eligible under the deal is the CTS Coupe, which reaches showrooms later this summer.
"It's a good time to offer these types of deals. They're being competitive at a time when people are luxury shopping," said Jessica Caldwell, a senior analyst at Edmunds.com.
"They need to prove themselves and offer a competitive product before they can compete with BMW or Mercedes," she added. "Right now, it's crucial for them to step up their game and break into the luxury market strongly."
Caldwell is encouraged that the luxury segment hasn't tanked along with the economy. Sales should improve later this summer and early fall as 2010 models are liquidated and 2011 models introduced, she said.
A mixed reception
The offers' varying lengths and coverage met with mixed reception among some analysts, however, who say Cadillac, in particular, didn't go far enough.
James Bell, executive market analyst for Kelley Blue Book, faulted Cadillac for failing to cover wear-and-tear items such as windshield wipers and brakes.
Cadillac's deal covers scheduled oil changes, tire rotations, engine and cabin air filters, and a multipoint vehicle inspection.
The offers should generate additional warranty and service profits for dealerships coping with sluggish retail sales, Bell said.
In addition, they should help ensure that owners take better care of leased and low-mileage vehicles, which ultimately will be resold by those same dealers, he said.
"Our bet says these programs become standard offerings from both U.S. manufacturers in the next year," Bell said.
The offers are not particularly novel -- many European brands have offered such perks for years -- but they do signal bids by Ford and GM to more aggressively pursue luxury segment leaders Mercedes and Lexus.
"The program is designed to raise satisfaction for owners by ensuring access to expert service," said Kurt McNeil, vice president of Cadillac sales and service. "It should lead to higher loyalty rates for dealers by establishing them as a valued resource for our customers."
The efforts also could increase margins for sales staff and ease the stress of buyers seeking freebies.
Each time Osen sells a Cadillac SRX, for example, his cut is $280 before taxes. But that amount shrinks after taxes and the $80 oil change that he routinely offers free to his customers.
The incentive also could help ensure leased vehicles are returned in better condition and easier to sell, Osen said.
"If the car gets fixed for free, what do they care?" Osen said. "I can't tell you how many lease turn-ins have the light on saying it needs an oil change."
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