Jeep's U.S.-style financing a hit in Japan

Industry

TOKYO — In a land where American ways don’t always mesh with local consumers, Jeep, the most iconic U.S. brand, has turned to the most iconic of American strategies to fight for market share: It is offering the Japanese deferred payments and leasing deals.

Both approaches are virtually unknown in Japan, a market where customers famously prefer purchasing their cars outright in cash.

FCA Japan CEO Pontus Häggström said his automaker is the first in the country to try its hand at both deferred payments and personal leasing.

“We were just cleaning up [through March], and then things started going sideways,” Häggström told Automotive News in an interview at FCA Japan’s headquarters in a downtown Tokyo high-rise.

Jeep, the rare American brand that manages to resonate in Japan, was heading into seven straight years of growth in the notoriously fickle market, posting record monthly sales in January, February and March.

It was on track to deliver a 15 percent sales increase in 2020.

But then COVID-19 hit, and Jeep sales in Japan began to tumble as customers dwindled.

“We thought we needed to do something to prop up sales,” Häggström said.

In May, FCA Japan took a page from the American playbook, creating a plan called Skip Loan. It allows customers to skip up to five months of payments and pay next year instead.

“That kind of deferred payment is not uncommon in the U.S., a kind of buy now, pay later scheme,” Häggström said. “But in Japan, nobody had ever done it before.”

The imported incentive ended up being a surprise hit. FCA Japan says it has picked up 2,000 contracts in the 10 weeks since offering the financing product. Vehicle financing, which accounted for around 40 percent of FCA Japan purchases last year, shot up to about 55 percent.

FCA Japan followed with a new personal leasing program for the Renegade compact crossover on July 1.

That plan offers set monthly payments of ¥30,000 to ¥39,000 ($280 to $364), including warranty, maintenance and road service costs. The program is geared toward younger buyers who don’t have the cash to buy a vehicle or make a loan down payment.

The flexible approach might smack of desperation to some industry observers, especially those who remember Mitsubishi’s disastrous 0-0-0 incentive push in the U.S. some two decades ago.

Mitsubishi’s plan let customers buy a vehicle with zero money down and no payments and no accrued interest until a later date. It ended up burying the brand in bad consumer debt.

The FCA Japan plan is not as extreme. And in any event, consumer default rates are extremely low in Japan in general. They are even lower for import brands such as FCA’s, Häggström said. FCA Japan experiences default rates well below 1 percent, he said.

The risk of undermining Jeep residuals with a flood of off-lease vehicles is also low, he said. That is partly because leasing is available on only one Jeep nameplate, the Renegade. And Jeep residuals are already very robust in Japan, where the brand benefits from a stellar reputation. The Renegade, for example, has higher residuals here than the Audi Q2 or Mazda CX-3, FCA says.

The new ownership options haven’t reversed the pandemic’s impact, but they have helped soften the blow. While the overall Japanese passenger vehicle market dropped 20 percent through June, FCA Japan’s sales were down by only 15 percent, and the Jeep brand by just 6.1 percent.

FCA’s share of the import market climbed to 10.3 percent in June, from 8.2 percent at the start of the year.

“Ten percent import share was one of those holy grails for us,” Häggström said.

The FCA boss conceded that reaching the planned 15,000 Jeep sales in 2020, from 13,360 last year, is now a tall order. But Häggström says just breaking even would be a victory in a year upended by COVID-19.

“If we can do last year’s numbers,” he said, “I think that that is a great achievement.”

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