Holiday Gifts for the Family and Someday a Car for You
CARMAKERS are forever looking for ways to keep customers coming back. They spend hundreds of millions of dollars on advertising. They slash prices. They throw in all sorts of options.
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Where Driving Has Its Rewards
But they are also increasingly turning to co-branded credit cards that give customers points for every dollar they spend, which can be redeemed later for gifts, vacations and new cars and services at dealerships.General Motors, the market leader with about six million cardholders, entered the credit card market 15 years ago. More recently, luxury carmakers have begun marketing cards, too, hoping to raise the profile of their brands while making it easier for their customers to spend $50,000 or more on a car.%26#8220;As customers go from entry level to luxury, it would help them go up the life cycle,%26#8221; said Hugh Bleemer, general manager of Chase Card Services, which issues cards for Audi, G.M., Honda motorcycles, Subaru and Volkswagen. %26#8220;It%26#8217;s a loyalty tool to bring them back and to bring the brand to the top of the mind.%26#8221;In many ways, carmakers are trying to mimic the success that airlines like American and United have had with their cards. According to a study this year by Edgar, Dunn %26#38; Company, an industry research firm, one quarter of consumers who say they have a co-branded card said they used an airline card. By comparison, just 9 percent of those surveyed said they used an automaker%26#8217;s card.Some car companies, including Ford, have discontinued their card programs. Ford said it ended the program because it did not bring in new customers or generate sales. The company also found that many cardholders were Ford employees, family members and retirees.The airlines have succeeded partly because they have created hub-and-spoke systems that force consumers in many parts of the country to use just one or two airlines for most of their air travel.Pascal Burg, a consultant at Edgar, Dunn, said that is why many people in the Chicago area, for example, use credit cards marketed by United Airlines, which has a hub there.By contrast, consumers have many more choices when shopping for a car, and thus loyalty is more fleeting.%26#8220;Airlines have a lot of penetration in cities where they have a hub,%26#8221; Mr. Burg said. %26#8220;People don%26#8217;t sign up for frequent-driver programs.%26#8221;Co-branded cards have flourished because they can turn into big money makers. For example, card issuers often pay the airlines when they give their customers miles for the dollars they spend. In effect, the airlines are paid in advance for tickets they may %26#151; or may never %26#151; give to customers using their mileage. The arrangements between automakers and credit companies vary more. Typically, credit card issuers pay a commission to auto companies for each new credit card customer and pay for part or all of the costs related to the loyalty program, including some of the rewards and car discounts.But carmakers have a fundamental challenge to overcome. With airline cards, consumers feel as if they are being rewarded for their loyalty because it is relatively easy to accumulate enough points to get a free ticket. Since cars are much more expensive than airline tickets, and consumers buy new cars only every few years, auto companies have to give their customers different incentives to use their cards.Here, analysts said, carmakers have an advantage over the airlines because consumers have more brand loyalty to car companies than to airlines.%26#8220;The opportunities for Audi, Saab and Mercedes is that the bloom is off the rose with the frequent-flier cards because it%26#8217;s harder and harder to redeem miles, and American travel is getting very tedious,%26#8221; said David Robertson, publisher of The Nilson Report, a credit card industry newsletter.Boris Bunich, 37, of Charlotte, N.C., has a Mercedes-Benz credit card. He says people notice the card when he uses it.%26#8220;People who have nicer cars, there%26#8217;s a little bit of exclusivity, and the credit cards make the cardholder feel exclusive,%26#8221; he said.Mr. Bunich, who owns a 2001 S500, got his card six months ago. For years, he used whichever card gave him the best deal on interest rates and payment terms. The Mercedes card appealed to him because, after owning a BMW and a Porsche, he was hooked on Mercedes. He also liked the terms the card offered, including five points for every dollar spent at a Mercedes dealership up to $500 and 10 points for every dollar spent over $500. Cardholders can also redeem points for airline tickets. 1 2 Next Page %26#x00bb;
Tags: Audi, Auto, automaker, automakers, BMW, cars, chase, consumers, Ford, Honda, Mercedes-Benz, New Car, new cars, Porsche, s market, Saab, Subaru, Volkswagen
