Automakers Add Non-Cash Spiffs to Spur Sales

Automakers Add Non-Cash Spiffs to Spur Sales

Automakers are adding spiffs other than low-interest financing and cash rebates to spur sales.

Ford announced today it will make Sirius Satellite Radio standard in some Lincoln models. Chrysler started promoting a free DVD system with the purchase of a Chrysler Town & Country or Dodge Caravan minivan. Last month, Chrysler pitched free Hemi engines on some models.

These spiffs come as March sales are being reported today and Wednesday. Edmunds.com predicts March sales will be down from year-ago levels. Edmunds.com further reported today that incentive spending edged higher last month.

Automakers are resorting to feature spiffs because financing and cash rebates may be losing their allure. In addition, automakers, especially domestic ones, are trying to boost their resale values and images. Adding content boosts resale value whereas rebates decrease it. Edmunds.com analysts estimate 80 percent of the cash rebate comes off the resale value of a one-year-old car.

Features allow automakers to focus on the vehicle and its content without screaming "distress sale." While, psychologically, the consumer loves getting something seemingly for free.

Higher Incentive Spending

Edmunds.com estimated today that the average automotive manufacturer incentive in the U.S. was $2,512 per vehicle sold in March 2007, up $220, or 9.6 percent, from February 2007, and down $9, or 0.4 percent, from March 2006.

Edmunds.com's monthly True Cost of Incentives^SM (TCISM) report takes into account all manufacturers' various U.S. incentives programs, including subvented interest rates and lease programs, as well as cash rebates to consumers and dealers. To ensure the greatest possible accuracy, Edmunds.com bases its calculations on sales volume, including the mix of vehicle makes and models for each month, as well as on the proportion of vehicles for which each type of incentive was used.

"Compared to last year, incentives are virtually flat," stated Jesse Toprak, executive director of industry analysis for Edmunds.com. “Automakers have placed high incentives on trucks in need of refresh and on the new trucks battling for market share, while small vehicles generally are in high demand and don’t need incentives to sell. The extremes of these two forces are balancing things out compared to last year, when proportional incentives were offered for the market segments.”

In March, the industry's aggregate incentive spending is estimated to have totaled approximately $3.8 billion, up from $2.8 billion in February. Chrysler, Ford and General Motors spent an aggregate of $2.6 billion, or 69 percent of the total; Japanese manufacturers spent $676 million, or 18 percent; European manufacturers spent $319 million, or 9 percent; and Korean manufacturers spent $143 million, or 4 percent.

According to Edmunds.com, combined incentives spending for domestic manufacturers averaged $3,330 per vehicle sold in March, up from $3,019 in February 2007. From February to March, European automakers increased incentives spending by $964 to $3,209 per vehicle sold; Japanese automakers increased incentives spending by $26 to $1,261 per vehicle sold; and Korean automakers increased incentives spending by $164 to $2,163 per vehicle sold.

Among vehicle segments, large cars had the highest average incentives, $4,223 per vehicle sold, followed by large SUVs at $3,789. Sport cars had the lowest average incentives per vehicle sold at $904, followed by compact cars at $1,170. Analysis of incentive expenditures as a percentage of average sticker price for each segment shows large cars averaged the highest, 15.3 percent, followed by minivans at 12.9 percent of sticker price. Sport cars averaged the lowest, 3.1 percent, followed by luxury sports cars at 3.6 percent of sticker price.

Comparing all brands, in March Scion spent the least, $76, followed by Porsche at $531 per vehicle sold. At the other end of the spectrum, Cadillac spent the most, $7,112, followed by Jaguar at $5,604 per vehicle sold. Relative to their vehicle prices, Mercury and Jeep spent the most, 17.0 percent and 16.7 percent of sticker price, respectively, while Scion and Porsche spent the least at 0.5 percent and 0.7 percent, respectively.

Lower March Sales Predicted

Most automakers will report March sales figures today, though Chrysler has postponed its announcement until Wednesday. Based on those numbers, expected to be lower than a year ago, new incentives of all sorts could be announced on slow-selling models soon.

Edmunds.com forecasts new vehicle sales (including fleet sales) in March to come in at around 1.48 million units, a 3 percent decrease from March 2006, which was last year’s biggest month. Despite the decrease this year, March still could be one of the 2007’s best months. And the industry, according to Edmunds.com, is still on track for annual sales volumes of approximately 16.5 million vehicles, along the lines of what we saw in 2006.

The compact-car segment is predicted to be the industry’s hottest for the month.

Ford and Sirius

Lincoln will make Sirius Satellite Radio standard equipment on 2008 MKZ, MKX, Navigator, Navigator L and Mark LT models. The package includes a six-month prepaid subscription to Sirius.

Nearly 600,000 Ford, Lincoln and Mercury vehicles have already been shipped with Sirius, a number Ford predicts will more than double this year. By fall, Ford will offer 23 Ford, Lincoln and Mercury vehicles with Sirius, all but the specific Lincoln models as optional equipment.

Ford has been very late to the party with satellite radio –- and navigation systems.

When March sales are reported later today, Ford is likely to see a 17.2 percent drop from a year ago according to Edmunds.com’s forecast. Ford’s market share likely will fall to 16.0 percent, down from 18.7 percent last March and 16.4 percent last month.

Chrysler and DVDs

Chrysler needs to clear out its inventory of current minivans to make way for the completely redesigned 2008 models that arrive in the fall. What’s more, spring is typically the hottest season for minivans as families begin planning summer vacations. And, for many, a DVD is an essential item to have for their trip.

The DVD giveaway is worth about $950, though it varies by region.

Last month, Chrysler had a free Hemi engine promotion on Dodge Ram pickups and Dodge Durango SUVs.

Like Ford, Chrysler is expected to report a sales drop when it posts March sales figures on Wednesday. Edmunds.com forecasts Chrysler sales will be down 6.2 percent, for a 13.7 percent market share, down from 14.2 percent in March 2006 and 14.0 percent in February.

Chrysler’s sales drop is despite the automaker’s high incentive spending. Edmunds.com puts Chrysler's average incentive spending at $3,896 in the first quarter, compared to the industry average of $2,363.

"Compared to last year, incentives are virtually flat," said Jesse Toprak, executive director of Industry Analysis for Edmunds.com. “Automakers have placed high incentives on trucks in need of refresh and on the new trucks battling for market share, while small vehicles generally are in high demand and don’t need incentives to sell. The extremes of these two forces are balancing things out compared to last year, when proportional incentives were offered for the market segments.”

Toyota Adds Tundra Incentives

Last week, Toyota added dealer incentives on some versions of its newly launched Tundra full-size pickup truck.

Toyota is trying to gain legitimacy in the domestically loyal full-size truck market, and the domestic producers battle to hold their ground. Moves and countermoves in incentives and advertising likely will continue in the long chess match. The stakes are high.

Tundra incentives are: 3.9 percent to 5.9 percent financing on all models, depending on the loan term; special lease rates on all models; $1,000 trade-in assistance for early termination of leases on the previous-generation Tundra; $2,000 dealer cash incentive on Regular Cab models; $1,000 dealer cash incentive on Double Cab models. The incentives run through the end of April. Some dealers already were offering as much as a $1,500 discount on the basic Tundra work truck, which is selling particularly slowly.   

Currently, General Motors is offering on its newly introduced Chevrolet Silverado 1500 and GMC Sierra 1500 a customer cash incentive of $1,000 and low-interest financing of 0 to 4.9 percent. Ford is offering a $3,000 cash incentive or 0 to 2.9 percent financing on its F-150. The Dodge Ram has $3,000 to $5,000 in cash incentives or  0 to 5.9 percent financing. Nissan is providing a cash incentive of $3,000 to $3,500 or 0.9 percent financing.

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.