Four wheeling and dealing

Jim Schwartz, Ph.D. has been market research manager for Newsweek magazine since 1983. He is responsible for directing Newsweek’s primary research activities. Prior to joining Newsweek, he spent five years at Audits & Surveys, which he joined after five years of teaching at the college level. He studied at the University of Minnesota and New York University , receiving his doctorate in sociology.

Following their home, the most expensive item most Americans purchase in their lifetime is an automotive vehicle. Like homes, vehicles are not simply possessions. They are primary elements in how individuals express their personalities and lifestyles.

Money is only one of many factors involved in the purchase of a particular vehicle. Two vehicles may be priced exactly the same and yet be entirely different in style, structure, size, and function. These differences accommodate differing buyer needs and become the basis for market segmentation.

Many automotive analysts maintain that the compact truck has been the most dynamic vehicle segment in recent years. This category includes compact pickups, compact sports utilities, and also, in some schema, mini-vans. Sales in this segment have exploded since the mid-1980’s for a variety of practical and perceptual reasons. For example, many drivers need, or at least feel they need, such truck features as four-wheel drive, greater cargo capacity, and the better view of traffic afforded by a truck’s higher ground clearance. In addition, compact trucks, like other vehicles, are of great importance in conveying an image with which many buyers want to be associated.

As a service to the automotive industry, Newsweek recently completed a comprehensive survey among new compact pickup and sport utility truck buyers. The purpose was to provide a database about buyers, their vehicles, and the purchase process which the industry can use as a tool to better serve future buyers.

Methodology

Data were collected with an eight-page questionnaire that was mailed to buyers of the thirty-eight 1989 compact truck models (hereafter called “trucks”) available for purchase in November and December, 1988. Names were selected systematically from private sector, unrestricted state registration data supplied by R.L. Polk & Co. A dollar was used as an incentive. In total, 8,451 questionnaires were mailed, with 183 being returned as non-deliverable. By the end of the field period, which extended from February 24 to April 24, 1989, 3,354 questionnaires had been returned, for a response rate of 41%. Returns were weighted by model to represent the number of registrations, so the results reflect the importance of each make and model in the market. Market Facts in Chicago was the research firm commissioned to conduct this project.

The purchase process

Much automotive research focuses on either the demographics of buyers or vehicle characteristics. The focus of this research is on another element concerning new truck buyers—the process that leads to the purchase. An incredible number of factors go into the process of buying a product that becomes a major reflection of the owner’s personality. This article is a review of the key elements in that process.

The length of the purchase process

Many durable products are purchased within a short time span and the decisions involved are made solely by the buyer. This is not true in the purchase of a new truck. The purchase process is lengthy. Sport utility buyers spend a median of eight weeks just in gathering information. They also spend a median of four weeks deciding to buy a new vehicle, three weeks visiting dealer showrooms, and one week deciding on the exact model.

Pickup buyers spend slightly less time at different stages of the purchase process, although the process is still a lengthy one. (These numbers are not additive because of the question structure.)

Many people involved in purchase

Typically, many people are involved in the purchase of a new truck. Understandably, nearly all drivers influence the purchase of their new trucks. The six percent not involved are the principal drivers (the respondents in this survey) who are not the registered owners. For example, some drivers may have received the truck as a gift from their spouse or parent. Of all purchases made, spouses influence 61%, auto dealers 55%, friends 52%, children 25%, parents 22%, and auto mechanics 21%. The point is that given the complexity and size of the purchase, a multitude of individuals apparently influence the purchase decision.

Decisions made in advance

When buyers first enter the purchase process, have they already made the key decisions, or are they receptive to alternatives in the market? Indeed, many buyers have actually made certain key decisions when they first thought of buying a new vehicle: nine out of ten truck owners knew the type of vehicle they would buy.

Approximately three-fourths knew the model they wanted, while slightly fewer than two-thirds knew the manufacturer they preferred. Over a quarter had selected the dealer they would buy from.

Such early interest in buying a specific model does not automatically result in purchase of that specific model. Because it is known that people frequently change their minds during the purchase process, respondents were asked if they actually bought the model they had in mind at market entry. Fully 74% of the pickup buyers said they had a specific model in mind, and 58% of all pickup buyers actually bought that model. Similarly, 80% of the sport utility buyers had a specific model in mind and 64% actually bought that model. In other words, approximately 80% of those who had a specific model in mine when they first thought of buying actually bought that model. These data are critical because they demonstrate the enormous value of pre-selling people before they enter the market as buyers. (See Graph I.)

Purchase order decision

Some years ago, when the automotive market was composed of far fewer models, many buyers probably selected their vehicles on the basis of loyalty to a dealer and the models he had in stock. This survey provided the opportunity to determine if the decision order remained that way. In fact, it has not. Of the four decisions mentioned above, the first one most buyers made is the type of vehicle, while the dealer is decided upon last. Model and manufacturer, often inseparable, are the second and third decisions of most truck buyers. (See Graph 2.)

Compact trucks—fad or fixture?

Some analysts thought the compact truck market’s impressive growth in recent years might be a passing fad. Yet much of the data in this survey indicate trucks are here to stay. For example, when respondents first seriously considered buying a new vehicle, 85% of the pickup buyers and 65% of the sport utility buyers considered truck models only, while 14% and 31%, respectively, considered both cars and trucks. Other factors which indicate that the truck market is not a fad include the reasons trucks were selected over cars, the alternative vehicles considered, and the vehicles disposed of, all of which are discussed below.

Reasons for selecting a truck instead of a car

Why did buyers choose a truck over a car? For pickup buyers, the primary reason was the need for a truck’s cargo capacity (56%). The primary reason sport utility buyers gave was a need for 4-wheel drive (63%), followed by seeing the vehicle(s) considered (46%). Three other reasons were mentioned by at least a fifth of the buyers: test driving the vehicle(s) considered, riding in the vehicle(s) considered, and talking with family/friends about the alternative vehicles available.

Reasons for buying a new truck

Buyers had a multitude of reasons for buying a new truck at the particular time they did. The two most important reasons were that they needed a more reliable vehicle (pickups—42%; sport utilities—34%) and they liked the appearance of the new vehicle (pickups—34%; sport utilities—42%). The third most cited reason was that costly repairs were needed on an old vehicle (33% and 26% respectively). Seven other reasons were mentioned by at least a fifth of the buyers in either or both segments: wanting a vehicle that gets better gas mileage, wanting a more economical vehicle to operate, growing tired of the old vehicle, receiving an attractive offer from the dealer, wanting better overall performance, wanting better quality/workmanship, and needing a larger vehicle.

Model decision factors

To determine which factors are most important in the purchase of a particular model, respondents were asked to rate a battery of 40 items. Two factors are clearly most important to buyers of both types of trucks: durability/reliability and quality of workmanship. Four-wheel drive is equally important to sport utility buyers. Table 1 lists the 19 factors rated as extremely or very important by at least 60% of the buyers on one or both segments.

Four-wheel drive

Four-wheel drive is clearly the factor that most distinguishes pickup and sport utilities buyers. This is confirmed to a great degree by ownership. Nine out of ten (89%) sport utility trucks have four-wheel drive, in contrast to only a quarter (27%) of the pickups.

Among those who own four-wheel drive, the most important reason for buying it, far and away, is drivability in rain or snow. Nine out of ten 4WD owners rated this extremely or very important. Other factors rated by over half of the four-wheel drive buyers as extremely or very important are safety, tough/rugged, riding comfort, off-road ability and interior noise level.

Alternative vehicles considered

For many buyers the truck purchase is a trade-off, a balancing of the merits of one vehicle with those of another. Only 39% of the truck buyers seriously considered buying only the model they now own. That is, 61% seriously considered at least one other model, including 36% who considered three or more models.

When buyers considered alternative vehicles, they primarily considered different models of the same type of truck. Among pickup buyers the alternative vehicle most seriously considered was another compact pickup (61%). A tenth considered a full-size pickup and 12% a car.

For sport utility buyers another compact sport utility was the leading alternative (47%), while a full-size sport utility was most seriously considered by 15%.

Only 8% of the buyers of each type of truck said the other kind of truck was the alternative vehicle they most seriously considered, indicating that the two types of trucks appeal to very different types of buyers.

As an indication of the degree to which alternative vehicles were seriously considered, over 90% of these buyers actually saw the alternative vehicle, and two thirds test drove it.

Truck shopping

New truck buyers shop around. Over three-fourths of the pickup and sport utility buyers visited two or more dealers. A third shopped at five or more dealers. In addition, a fourth of the pickup buyers and a third of the sport utility buyers telephoned but did not visit other dealers. The average number of dealers contacted either in person or by phone was 4.4 for pickup and 4.9 for sport utility buyers. An important part of the dealer contact involves the test drive, which over three-fourths of the buyers took.

Purchase price and financing

The median price of the sport utility is $17,500. That of the pickup is $11,500—still expensive, but considerably less so. Most buyers do not make expenditures of this magnitude as single payments. Three-fourths of all new truck buyers financed some portion of the purchase price. In most cases, the dealer arranged the financing (72% for pickups, 56% for sport utility). The primary loan source for half the buyers was the bank, the median interest rate on the loan was 11.0% and the majority of loans were for 60 months or longer.

Vehicle disposal

Trading in or selling another vehicle is one method many buyers use in securing funds to pay for their new trucks. Approximately two-thirds of all compact truck buyers disposed of a vehicle when they bought their new trucks. Significantly, 41% of the pickup buyers disposed of a car. Nearly half disposed of a pickup, primarily another compact pickup (30%) and to a lesser extent a full-size (16%).

Only a quarter of the sport utility buyers disposed of a sport utility, either another compact (20%) or a full-size (5%). Over half (57%) disposed of a car. The important finding here is the high percentage of cars being disposed of in favor of trucks.

Post-purchase satisfaction

Having been through the purchase, and being interviewed in their “honeymoon” phase, most buyers report high satisfaction with their vehicle. Over four out of five are extremely or very satisfied.

If they could repeat the purchase process 85% of the sport utility buyers and 73% of the pickup buyers would buy the exact same make and model again. However, and this is a serious warning to some manufacturers, a fifth (19%) of the pickup buyers say they would buy a different new truck. Buyers expect to keep their new trucks a median of five years. Over a fifth plan to keep their new truck 10 or more years.

Demographics

Key demographic characteristics of new compact truck buyers appear in Table 2. Buyers in both segments are more upscale than the population as a whole. Their median household incomes are higher than that of all American households. In addition, a greater percentage are employed in professional or managerial occupations and have at least some college education. The figures for sport utility buyers are significantly higher than those of the pickup buyers.

Both segments are predominantly male. Their median chronological age is 38, but their psychological age (how old they feel) is much younger, 30. One important indication that the compact truck segment is likely to continue to grow is that half of the respondents are first-time buyers.

Conclusion

The compact truck market has experienced phenomenal growth in recent years. The elements of the purchase process that buyers go through indicate that this market is not a fad. To the contrary, it is not only viable, but growing. Compact trucks meet functional needs as well as image management requirements for their buyers. As the manufacturers have tapped into a need that is only now being met, it is likely that this automotive category will continue to grow before plateauing in share and volume.