LOS ANGELES - Mitsubishi Motor Sales of America's 'zero-zero-zero' incentive program did so well at generating showroom traffic in the traditionally slow fourth quarter that the company has extended it into this year.
However, while the highly visible program has been the focus of Mitsubishi's dealer advertising budget, it actually has cost the automaker much less than past incentive plans.
The 'zero-zero-zero' plan lets a Mitsubishi customer buy a vehicle with zero money down, with no payments and no accrued interest until Jan. 1, 2001. The program, which began in October and expires Feb. 29, helped the company record its two best-ever sales months in November and December, when it sold 28,090 and 27,295 units, respectively.
'We knew we needed an event strategy because we wanted a record year,' said Pierre Gagnon, Mitsubishi executive vice president. 'This has worked so well that we've run out of vehicles. Our sales force is tired.'
The program costs far less than subvented leasing, the typical auto-industry method of speeding up sales.
The program costs Mitsubishi only the carrying costs of the wholesale value of the vehicle. With Mitsubishi's cost of funds at about 8 percent, that's roughly $500 a year per $10,000 of vehicle value, said David Littman, chief economist at Comerica Bank in Detroit.
That's well below the industry average of $1,877 in manufacturer incentives per unit, said Art Spinella, vice president of CNW Marketing Research in Bandon, Ore.
Yet with the way Mitsubishi is marketing the offer, it seems as though the company is giving away the farm.
'If people think they are getting something for nothing, then it must be working,' Spinella said. 'In the end, the customer still is buying the whole car instead of leasing it.'
That means Mitsubishi is saving money on the back end as well. The company has done poorly with off-lease residual values compared with segment leaders Toyota and Honda. To stay competitive in the lease market, Mitsubishi had to subvent both the interest rate and residual value.
That has resulted in Mitsubishi spending between $3,000 and $4,000 per unit to move lease vehicles, Spinella said.
With this program, Mitsubishi is re-establishing itself in the retail game. In the past, Mitsubishi leased more than 40 percent of its new-vehicle volume. Now that mark is below 25 percent, Gagnon said.
'We're not the $199 Galant company any more. We used to market Mitsubishi as the payment company and didn't focus at all on the value of the product. This program is much cheaper than leasing,' Gagnon said.
FEW SIGNING UP
Although the program is highly visible, a rather small percentage of consumers are using it. Gagnon said about 10 percent of Mitsubishi units sold in November used the program, a percentage that has dropped since to about 5 percent.
That's because Mitsubishi's captive finance arm has rolled out other less publicized retail finance programs that F&I managers can tailor to the needs of individual customers.
Gagnon said the only real risk with zero-zero-zero was in discovering a bunch of bankruptcies once the payments start coming due in January. But a pilot zero-payments-until-2000 program last June showed the eligible A-tier customers didn't default at any greater rate than usual.
The real success of the deal has been in getting dealers lined up with the program, Gagnon said. With Mitsubishi dedicating $110 million in dealer ad association money this year (up from $30 million in 1997), seeing the dealers unite in marketing the zero-zero-zero plan was a nice test run, Gagnon said.
It has been more than a well-crafted incentive plan that boosted sales. Mitsubishi's new customer-tracking technology at the dealerships was ready for the increased traffic, resulting in the closing ratio soaring from 11 percent last year to 30 percent now, Gagnon said.
NEW PROGRAMS PLANNED
Joe Mitchell, owner of Mitsubishi stores in Elgin and Schaumburg, Ill., said the program allowed his stores 'to accomplish things we've never been able to do before. Our closing ratio is at 33 percent, and about 70 percent of the people coming in to our store are taking advantage of the (zero-zero-zero) deal.'
But with the program in its fifth month, and with the 'free' period getting shorter, 'the fizzle has kind of gone out of it,' said Brent Wade, new-car manager at Metro Mitsubishi in Bloomington, Minn.
'We had a great boost at the end of year. You might see those kinds of sales numbers in July, but never in December in Minnesota,' Wade said. 'But it's starting to taper off now.'
Gagnon said Mitsubishi is ready with new programs once the zero-zero-zero plan expires at the end of the month.
'We have a real integrated marketing strategy with our dealers,' Gagnon said. 'You're going to see a lot of us in 2000.'