Peugeot takes on the risks of financing in order to sell cars

Automobile manufacturer Peugeot is being forced to take on the risk of heavy discounts on vehicle financing. The goal is for the dealership network to reduce its inventory.

Having wrapped up the worst year for auto-sales in Spanish history (sales dropped 28% in 2008, figures not since the recession in the 90s) car manufacturers are making an effort to find the formula to overcome the biggest crisis to hit the industry. Peugeot has decided to help its dealerships, the link in the chain most severely punished by the current situation, by helping to eliminate stock. The French automaker has promised to lower sales network costs and launch competitive sales campaigns.

The company aims to clear out older models and bring in new ones by making credit accessible to clients, which means taking on the risk of default. Their biggest efforts will focus on the 207 and 308 models. To do so, Peugeot has launched its 'Park the Crisis' marketing campaign on all its products in an effort to palliate the financial draught industry sales are suffering. The brand symbolized by a lion will subsidize 5,000 Euros at cero interest in connection with the 10,000 Euros of the Plan Vive. The rest of the financing will be subject to around 2% interest depending on the amount.

However, clients' access to credit is the industry's bone of contention. The number of loans for car purchases dropped 66.8% in December, bloodiest month of the year for the industry according to figures from the National Association of Lending Institutions (Ansef).

The company claims that the implementation of measures to reduce unsold units began last year and managed to clear out 8,000 vehicles. The average time in stock went down from 2.7 months to a month-and-a-half in the previous fiscal year. According to brand spokespeople, the goal is to increase market share by facilitating car purchases and by introducing a new line of eco-friendly cars.

Strategies

Peugeot hasn't been the only company to roll up its sleeves in order to lower the number of un-owned cars on manufacturers' lots, a number that has reached 400,000 units. At the beginning of the year, Ford launched an aggressive sales campaign to get rid of 6,000 passenger and work vehicles by offering a 25% discount on the final price. The American company claims that it has a backlog of 25,000 unsold vehicles. Even the world's largest car manufacturer is studying the possibility of lowering worldwide car production by 20% in order to bring down the number of units in stock.

Industry sources explain that some brands have accumulated vehicles in stock this last quarter to meet their sales objectives against the trend that the industry was adopting.

Several weeks ago, the managing director of Peugeot Spain, Rafael Prieto, described the automotive industry's critical situation by forecasting that sales would not exceed 950,000 units, which would mean a 19% drop in 2009. This scenario would cause 30,000 dealership jobs to be eliminated of the 178,000 jobs in the Spanish network. Furthermore, he pointed out that vehicle production could suffer cutbacks of 600,000 units.

Peugeot saw its sales in Spain drop by 23.2% in 2008, but managed to increase its market share by 0.08 points, up to 9.3%, thus becoming the second best-selling brand of the year after Ford.