About Saab sales incentives

Sales incentives are a curious thing. I’m no automotive historian, but it’s my understanding that whilst incentives have always been around, they really kicked in in the US market after the September 11 attacks.

When those 19 bastards took control of those planes and did what they did, they sent a shiver right down the US economic spine. The market dropped significantly in the immediate aftermath and the response of the carmakers was to kick incentives into overdrive. With as many as 1 in 12 US jobs related to the auto industry and its fringes, combined with a lack of air traffic and subsequent lack of rental car demand, the importance of keeping the auto industry moving was imperative.

GM dived into the incentive game with gusto, offering 0% and/or cash to keep the metal moving. The upside of this was that the industry did keep turning over its inventory and economically, the US wasn’t disrupted as much as many thought they would be.

The downside is that for 6 years now, customers have learned to expect incentives from American owned automakers. That expectation goes so far as to have people holding out for months and months to wait for that better deal. Do they really help?

This is going to be an exercise in what you US folks call ‘armchair quaterbacking’, to an extent anyway. I know that executives are in a pressured position and have to get results somehow, but are incentives the right way to go about it?

First, you’ve got the reputational damage. Customers look, and they know. “Why have they got to offer that much off the car?” would have to be a fairly common question. You’ve also got the hit that re-sale values take as a result of heavy incentive buying.

Saab released the 9-2x as a way to get younger buyers into Saab and to a certain extent it worked (hey, Nevitz). But if any of those 9-2x buyers have stayed with the brand and traded up then they’ve taken an enormous hit to do so (hey, Nevitz) – and that’s because of the deep, deep discounting GM did during the Employee Pricing for Everyone promotion a few years ago. 9-2x values dived and a subsequent purchase of another Saab under those circumstances indicates a fair amount of commitment (hey, Nevitz).

The other reputational hit is the month-after-month listing of Saab as one of the deepest discounters in the US. They took the title again in September 07, with an average incentive of almost 20% of a car’s list price. That’s massive, and the only ones really benefitting are the consumers, but it’s a short term benefit and with the exception of long-term owners, I wonder if it’s really any benefit at all.

You see it different facets of life all the time. Careers, sports, education. You name it, and i’ll find an example where someone or some organisation has built organically on quality in order establish a lasting period of success. Massive incentives allow for some numbers on the company’s books to resemble those of a succesful player, but a study of the underlying circumstances will tell you that that’s not the case.

Saab needs to build on quality – in design, innovation, materials, safety, performance and reliability. They’ve definitely got a part to play in this.

But so do consumers. I’m not going to make any friends by saying this, but if I hear another complaint about how the incentives to buy aren’t big enough then I’m going to scream. I publish incentive information when it comes about because it’s there and people reading will have an interest in it. I never have, and never will, encourage people to wait for bigger incentives, thereby holding their dealer and Saab over-all to ransom.

My advice, and what I’ve done in practice (though in the second hand market only due to my own financial circumstances) is if you want a car, find one that you want that’s in your price bracket – and buy it at a fair price. Use the incentives that are available and negotiate all you like with your local dealer, but don’t get savage on the company or the dealer if their incentives aren’t as big as you personally imagine they should be.

A product is worth a certain price and the company has a responsibility to make sure that that product provides value at that price. The consumer’s responsibility is to assure themselves that that product is what they want/need. The fact that they’re considering it means that the price is in the ballpark, so if it meets your needs – I say haggle with what’s available at the time and then go for it.

Both consumers and Saab (and GM in general) need to take steps to wean themselves off the incentive drug. For Saab that means a quality product that justifies the price they’re asking. For consumers it means biting the bullet when the car is right and the time is right. It’s a long process, but I really hope it can come into being as life will probably be a lot easier for everyone when these things aren’t that much of an issue any more and Saab’s public reputation is more readily associated with that of a quality carmaker worth having a look at.

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12 Comments

  1. Exquisitely stated! I will take it one step further and also point the finger at the dealers as well. In addition to the huge incentives that have been out there for the last several years, dealers additionally (NE region of US) have been cutting deep into the price in order to make a sale. We have a quality product yet offer it to the public as if it is second rate, adding to the perception that unless the car is deeply discounted, there is no inherent value.

    With regard to deep discounting, what is the sense of selling a product with little or no profit? If you continue along that road where does it lead? From a consumer’s view, sure we all want a great price but since when have auto dealerships become viewed as not-for-profit organizations? Cannibalizing the brand and each other is not the answer.

  2. (hey, Nevitz) -Swade

    LOL! Sounds like you are a good carpenter, because you sure hit the nail on the head! I’ve told my story before, but as a recap I will share a little. In ’05 I had my first opportunity to buy a NEW car. I work for a sub-company of GMAC and can get employee pricing, and looked at the GM portfolio of cars. I was raised on Honda’s and it was in my DNA to despise GM cars. It was a tough pill to swallow, looking at the line-up. I tell you, at the time I was looking for a $20k car. My choices were bleak – a loaded Cavalier or mid-priced Malibu, a G6, or a loaded Ion. I considered a loaded Honda Civic, but my mom has one and it was too small. A base model Accord would fit the bill. But wait, there was Saab! Bestill my heart — A Japanese made – Swedish branded – American owned – safe car – with a discount! A loaded Saab 9-2x!

    Needless to say, I took the plunge and was forever changed! A year later got rid of my wife’s Honda Odyssey and stole a Certified used MY03 9-5 for under $17k! After 2 years with the 9-2x, finally got my Combi. Now we are shopping for a new convertible!

    Now the rub. I would not choose to use my employee pricing on any other brand of car that GM has to offer. Sure it saves thousands already, but I really depend on the incentives to bring the price into my range of being affordable. To give an example, the MSRP on my Combi was $33,615, and then add tax/tag/title. My employee discount and incentives got me the Combi alone for about $24k. I traded the 9-2x and lost $8k in equity (hey, me!). The total tab was $34k after employee price and incentives. I was fortunate to be able to put $4k cash down, but it was not in my budget to finance any more than $30k. At the time in April, I only was able to get $4500 in incentives ($3500 dealer cash/$1000 Saab loyalty) from the dealer, and needed every penny. At the end of the day, what other cars could I have gotten for $30k? C230, 3-series, TSX, a used TL, a loaded Accord. But consider these cars don’t come with rebates, then my being upside down $8k lessens my buying power to only $22k. What of that? Back to the list I mentioned above? Nah…

    While I understand your point of view Swade, and while I am one of the fortunate ones to be envied by getting GMS/Employee pricing, I relied on the incentives to get the deal done. I figure that I’ve lost so much money on the 9-2x gig (hey, me!) that GM owed it to me (partial sarcasm). It’s the least they could do, right? (wink)

    Let’s just say that a difference in that $4500 incentive to me was the difference in remaining a Saab driver. Retention, Retention, Retention. Saab LOYALTY. After all, I believe most people that are taking advantage of the new car incentives are return Saab buyers. So, while some see incentives as ‘extra bonus’, I can see it as ‘retention security’. Different perspective maybe?

  3. Swade, like you I haven’t been in the position where I have been in the market for a new car. All the same I think offering so many incentives, to all and sundry does cheapen the brand. I think special editions with extra features, say as a run out model, is a good idea and maybe one special sale period each year. But ongoing discounts and incentives aren’t.

    In lowering margins it justifies the use of cheap components. Because the car isn’t going to sell for anything near full price GM cuts corners by using cheap components, eg on the interior, so that there is still some profit. If you could get rid of discounting maybe that would justify using more premium quality parts? How many reviews have we seen where they like the driving ability of the car but refer to the interior materials not being up to scratch.

    If it really is $50K car then sell it for that price. If it isn’t worth that much then you need to improve the car so it matches the price tag.

  4. Here in the UK for the last two years Saab has been guilty of devaluing its product. Pre-registered cars litter dealers forecourts, and the used market has been deluged with ex-fleet and rental cars, all so Saab UK could meet its lofty targets. However now with the launch of the 08 model 9-3 they seem to have seen the light. Rather than concentrating on discounting we have got some excellent finance offers in place which put the emphasis back on the monthly payment not the price of the car and the cars themselves are excellent value for money compared to the opposition whether you consider the opposition a 3-series or a Mondeo. Fingers crossed, along with the introduction of the new models, 9-4x etc, this is the start of the strengthening of the brand.

  5. Let’s put it this way, The maufacturers have (for better or worse) created a customer that they need, but can no longer afford to deal with.

  6. I think Nevitz hit it on the head. SAAB needs to move away from incentive bonuses, and much more into loyalty bonuses, which goes hand-in-hand with paying higher for SAAB trade-ins. That would raise the resale value, while improving the perception of the brand, and help nurture long-term customers.

    But then again, I’m neither an economist nor a marketing type. So maybe that’s a really dumb idea.

  7. Well, I was one in the U.S. that took advantage of those amazing incentives back in late Sept. of 2001. I was working in the Pentagon at the time of 09/11 and thought two things: I could buy my dream car and help the economy and then was as good a time as ever since you might as well enjoy life while you have it. I got a 2001 Viggen Convertible for $37,209 USD when the sticker was $46,445. $9k off sticker!

    The problem is most consumers see the sticker of $46+K and SAAB intentioally does this to be on the level of BMW/Audi/MB etc. They should just price them more realistically and undercut those other makes.

  8. OK, I admit it, I am a whore for a great deal. My first SAAB, a 93 9000 CDE turbo was a demo with 4k miles on it and I got almost $10,000 off. SOLD! My second was an 03 9-3 SS I got at end of the year clearance. $7,000 off, plus I received $4,500 trade in from my 97 Accord. SOLD! When I got my 07 9-3 convertible, I happened upon a mistake on the SAAB USA website, printed it off and received the incorrectly stated incentives: $6,000 plus $1,000 owner loyalty, plus I got $3,500 out of my 03 9-3. SOLD! If I had not received the $7,000 off my first 9-3, then I would not have been in position to buy the 9-3 convertible as I would have been “upside down.” Hell, without that $7,000, I may have ended up in another Accord and never been a repeat SAAB customer. If SAAB had better resale value, then I would not expect as much if any in incentives (like the Honda.) It is catch-22. I know that with the convertible, the resale is much better, but still If I had not received any incentives, I may still be in my 03 9-3 or (parish the thought) another brand. SAAB is not alone in this. Volvo throw money at cars like it is going out of style. Lincoln routinely throw $8,000 to $15,000 off their Town Cars and Navigators. Even Toyota has been throwing incentives around. I am not sure what the answer is, maybe price cars realistically in the first place??? Improve image to reduce incentives (as I think SAAB reliability is far better that BMW and MB at the moment but it is not reflected I the image)???

  9. I financed my 2001 Viggen at 0% on 12/1/2001, on top of other incentives since the 2002’s were showing up. Mike C. nailed – GM and other US manufacturers have put themselves into a serious bind. The American consumer now expects that if they buy domestic, they may sacrifice some quality between the Accord they would have bought and the Malibu they wound up with, but they will get that car at a ridiculously low price or finance rate – lending free money to the masses is no way to make a profit. It will be next to impossible in the short term for the US manufacturers to get out of the bed the made for themselves.

  10. I’m like David, I’m addicted to incentives.

    I think cars are like the stock market, you get a better deal if you buy what is of good quality but out of favor with the masses.

    Give me 0% financing or rebates the size of Chicago.

  11. Dealers have all kinds of reasons to move cars. One reason is that they continue to make money on the car when the customer returns for service. And since SAAB offers three free oil changes (aka free scheduled maintenance), it gives dealerships a chance to make a buck or two on the back end of the deal and keep their service bays full.

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