Sticker Shock Relief

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At last month's Greater Los Angeles Auto Show, Lexus displayed a gleaming white LS 400 at the bargain price of $33,995.

The car was a used '92 model. Or in Lexus' lexicon, a "Certified Pre-owned" model. Toyota Motor Sales USA's upscale division made a bold move in turning a new car show into a used car lot, but it was a clever response to the shocking sticker on a nearby '95 Lexus: $56,630.

From luxury Lexus down to a standard Nissan Sentra, the marketing of used cars is entering a new era for manufacturers, dealers and consumers. For all three, "slightly used" is becoming the answer to the issue of automotive affordability.

Savvy marketers see the situation not merely as a problem, but as an opportunity. Low-mileage, high-quality used vehicles are "an intelligent way to provide entree to the brand," said Andrew Goldberg, general manger-integrated marketing communications for Mercedes-Benz of North America, which remarkets late-model cars complete with warranties and roadside assistance.

Affordability was a major buzz among the 18,000 dealers and industry members who gathered in Dallas Feb. 10-14 for the National Automobile Dealers Association annual convention.

Tom Webb, association economist, predicted a remarkable shift in the market in which carmakers are forced to focus on a shrinking pool of affluent new-car customers that trade their carsoften, providing a pool of used vehicles for those priced out of the new market.

The association predicts the average transaction price for a new vehicle will top $20,000 in 1995, continuing a 15-year rise that has outpaced consumer earnings.

Mr. Webb said the average new-vehicle buyer in 1981 had a household income 22% above median household income. But in 1994, that same buyer had a household income 42% above the median $37,800.

Another way of measuring the trend: 62.1% of the 1,253 respondents to a January survey by the Dohring Co. said the high prices of new cars are causing them to consider buying a less expensive used vehicle.

"The issue of marketing used vehicles is really heating up," said Doug Dohring, chairman-CEO of the Glendale, Calif.-based auto marketing research company. "Manufacturers are beginning to recognize the importance of that area to a dealer's business."

The affordability issue is "a value crisis," said J. Ferron, Detroit-based partner in charge of Coopers & Lybrand's automotive consulting. "Customers are deciding whether or not there's enough value to justify that monthly fee."

Higher new-vehicle prices result from government safety and emission regulations, combined with a growing desire for extras like air conditioning, power windows and locks, and premium sound systems.

"We feel there's an affordability problem. We're very conscious of it," said Jack Smith, president of General Motors Corp. "It's a warning flag out there."

Starting at $8,395, the Geo Metro is one of a handful of new cars priced under $10,000. GM's Chevrolet division and agency Lintas Campbell-Ewald, Warren, Mich., based a marketing strategy on the premise that Metro's chief competition is used cars. That's why Metro's new-car warranty and roadside assistance program are featured.

GM has been on the leading edge of the "value pricing" movement, packaging cars with a discounted set of popular options. But dealers complain because some of the discount is achieved by cutting their already-thin margins.

According to the National Automobile Dealers Association, dealers average $300 per unit profit on a used vehicle, double that of a new car.

Slightly used cars fill a market void, said Fred Miller, a Los Angeles area megadealer with seven stores including two Nissan dealerships. "What we found the last couple of years [is] the entry level really has become the program cars [former rental fleet vehicles] and the return lease cars and the high-end used cars."

Value pricing is just one fix the industry has attempted in recent years.

The most popular marketing tactic currently is leasing, allowing lower monthly payments because the consumer isn't building up equity. About 27% of new vehicles were leased last year, amid predictions the share will eventually reach 40%.

For some luxury lines like Nissan Motor Corp. USA's Infiniti division, two-thirds of cars may be leased. That's why it's not surprising that luxury marketers are leading the way in remarketing late-model used cars.

Luxury makes like Mercedes, Lexus and GM's Cadillac have formal used-car marketing programs through dealers as a way of protecting prices. That helps hold up leased cars' residual value, new-car prices and the value of the marque. For similar reasons, Infiniti now takes out big ads in newspaper classifieds to promote the value of a used Q45 luxury sedan.

There were an estimated 30 million used cars sold in the U.S. last year, with new-car dealers selling about one-third of the used vehicles, according to the dealer's association.

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