Edmunds.com Sales Analysis: April Sales Spawn May Incentives

Edmunds.com Sales Analysis: April Sales Spawn May Incentives

April brought a deluge of bad news in terms of lower vehicle sales for automakers. Could flowers be far behind the showers?

Maybe not for the automakers, but certainly for consumers. They took a wait-and-see attitude in the incentive-sparse month of April. Their wait may prove worthwhile. Automakers are likely to launch a new crop of incentives, some of which have already sprouted, to spur sales and keep vehicle inventories in check.

“Based on last month's sales, I would almost guarantee that incentives will be up significantly this month,” said Alex Rosten, Edmunds.com’s manager of pricing and industry analysis.

Some automakers already have launched new incentives.

Chrysler, which bucked the industry trend and reported slightly higher April sales, says it will offer “aggressive incentives” in May, including zero percent financing for a 60-month loan, cash back on certain vehicles, and some new discount offers throughout its lineup.

Ford, which on the day it reported a 13 percent drop in April sales, immediately launched May sales incentives. Those incentives include:

· vehicle option packages on some models at no charge under its "Ford Challenge" campaign;

· three years of free Sirius Satellite Radio on all Mercury models;

· zero percent financing for 60 months or $3,000 cash back on the F-150 as well as a free "Tow & Go" package, normally $1,545, that includes a V8 engine and trailer towing equipment;

· a no-charge "Pony Package" on the Mustang coupe, normally $750 and includes appearance accessories;

· a $500 rebate on the Ford Escape as well as a $990 "Sun and Satellite" package, which includes a sunroof and 12 months of free Sirius Satellite Radio, for free.

April Sales Analysis

As Edmunds.com forecasted, April industry sales declined. April sales number came in at 1.34 million units, down 7.3 percent from a year ago. Weaker consumer confidence, high gas prices, the housing slump, the tax season, decreased incentives and two fewer selling days this April than last contributed to the decline.

The April sales report did include a few surprises. Nissan and Honda posted declines. So did Toyota, without adjusting for the difference in the number of sales days. Chrysler posted a small gain, and General Motors posted only a slight decrease.

Here’s Edmunds.com’s deep-dive analysis of the good, the bad and the ugly of April sales:

CHRYSLER

Chrysler surprised everyone by reporting sales up 2 percent. It doesn’t sound like much, but it reversed Chrysler’s trend of late and was better than the industry in total.

The Good

Chrysler’s strategy to offer something extra for no extra charge works. In March, Chrysler threw in the Hemi engine for free on some models. In April, Chrysler gave away a DVD player along with zero percent financing on its minivans. The strategy works well because the ads promoting the free DVD players are clever. One shows a bus driver flipping the switch on the DVD and the noisy kids immediately going quiet. And the ads don’t scream “Fire Sale.”

Chrysler’s new products are selling well. In particular, the Wrangler Unlimited is a hit.

The Bad

The fact that Chrysler’s new products are doing well has a flip side. Without the new models, Chrysler sales would be down 5.6 percent. That suggests the new models are cannabilizing Chrysler's existing customer base.

And, the once dazzling Chrysler 300 has lost its luster. Sales fell 29 percent in April despite a whopping 226 percent increase in the incentives on it, based on Edmunds.com’s Total Cost of Incentives (TCI) calculations.

FORD

As Edmunds.com predicted, Ford sales, including all of its brands, dropped 13 percent this April compared with last.

The Good

Ford is regaining control of its inventories. Its inventory stood at 566,000 vehicles in stock, down 193,000 units from year-ago levels. At the same time, Ford’s strategy of lowered sticker prices and lowered incentives is working. As proof, Expedition sales climbed 27 percent in April while TCI dropped 60 percent; Navigator sales rose 12.6 percent and TCI dropped 52 percent.

The Lincoln brand saw sales rise 6.9 percent on the strength of its freshened Navigator and MKX crossover.

Land Rover sales were up, thanks to the new LR2 SUV.

And within the Ford brand, thank goodness for the Edge crossover. Escape, Freestyle and Explorer sales combined fell by 4,637 units in April. Edge sales came in at 9,134, for a net gain of about 4,500 units.

The Bad

Ford has been successful in lowering unprofitable fleet sales on a pure volume basis, but not as a percentage of its total sales. The sheer number of fleet sales was down 5 percent from last April. At the same time, retail sales fell 17 percent. The result: fleet sales as a percentage of total sales rose to 38 percent from 35 percent last April.

Ford and Mercury brand sales dropped 14 percent. Ford cars fell 26.7 percent, largely due to the elimination of the once high-volume Taurus from the line and slow Mustang sales. F-Series sales declined 12.4 percent due to the housing slump, which directly correlates with pickup sales, combined with intense competition from GM’s new trucks and Toyota’s Tundra.

Lincoln's Mark LT sales dropped almost 50 percent.

Volvo sales fell 16.6 percent. The bright spot was a 7.4 percent increase in sales of the S80, which has been redesigned.

The Hideously Ugly

Jaguar has gone from bad to hideously ugly. From 2005 to 2006, Jaguar sales dropped 35 percent; for the 2002 to 2006 period, sales plummeted 66 percent. And Jaguar’s free fall continues this year. Worst yet, sales of its brand-new XK coupe and convertible dropped 19.7 percent. Jaguar's incentive spending in April was the second highest in the industry at $5,605 per vehicle.

GENERAL MOTORS

GM sales dropped 2.2 percent. The decline was less than anyone forecasted.

The Good

GM’s year-to-date sales are running about 85,000 units behind last year. However, GM has purposely reduced unprofitable fleet sales by almost that much -- 83,000 units, putting retail sales about even with 2006's retail sales. GM's retail car sales were up 1.7 percent in April; its retail truck sales were up 6 percent.

GM’s new models are selling well. They include the Chevrolet Silverado and GMC Sierra pickups, the Cadillac Escalade , GMC Yukon XL and Chevrolet Suburban SUVs and the Pontiac G5 . Also doing well are its new crossovers, the GMC Acadia and Saturn Outlook.

The Bad

GM had cut incentives in 2006 to their lowest level in four years. However, GM incentives are on the rise again. In April, GM’s average incentive was $2,768, up 10.1 percent from $2,515 in April 2006. Cadillac spent the most last month, at $7,391 an average vehicle, $1,786 more than the next biggest spender, Jaguar.

And then there’s Buick. No matter what new products Buick introduces, and no matter what critical praise they receive, they don’t sell. Sales of Buick’s two newest cars, the Lucerne and LaCrosse, dropped, albeit much of it due to intentional fleet sale reductions.

Buick’s hopes ride on the upcoming Buick Enclave crossover. It has the same underpinnings as the highly acclaimed and strong-selling Saturn Outlook and GMC Acadia, so the product isn’t the issue. But can Buick lure buyers into it?

TOYOTA

Even Toyota is not immune to a soft economy. Sales were up 3.7 percent, when adjusted for the difference in selling days this April compared with last, but were down 4.3 percent in unadjusted numbers.

The Good

Sales on an adjusted basis were still up while most automakers and the industry in general were down.

Lexus sales rose 14.1 percent on the strength of its new cars, the LS 460 and ES 350.

Toyota and Lexus hybrid sales climbed 48 percent. Prius sales alone soared 59 percent, despite the fact that the tax abatement was slashed in half to $787 as of April 1. Toyota, however, offset that tax abatement decrease with lower price on option packages.

The Slightly Homely

Toyota division’s car sales, including Scion, dipped 1.5 percent. Much of that was due to its Scion brand selling down the current xA and xB to make room for the new xD and the new xB. Otherwise, Toyota’s car sales would have been up.

As for the closely watched pickup truck race, Tundra sales were up –-  up a substantial 74 percent. However, at 14,200 sold last month, Toyota remains well off its pace of selling 200,000 a year. In addition, Tundra sales are costing Toyota in Incentives. The Tundra’s TCI increased 251 percent in April from March. The Tundra went on the market in February.

NISSAN

Nissan had hoped for a sales turnaround now that its long product drought is over. But even with its new models, which didn’t do particularly well, Nissan sales were down 14 percent in April.

The Good

Incentive spending is down 20.1 percent.

The redesigned Infiniti G35 is selling at a torrid pace.

Nissan has new models, specifically the Altima Coupe (and a hybrid Altima) as well as the Infiniti G37 coming to market soon.

The Bad

Nissan’s car sales dropped 11.1 percent despite the introduction of the new Sentra and Altima. In fact, those models saw large drops. Altima sales fell 12.5 percent; Sentra sales plummeted 42.5 percent. The Sentra is losing out to its to its sibling, the smaller, less expensive Versa. Nissan slashed incentive spending on the two models by 70 percent or more, but it may have to restore some incentives.

The Ugly

Nissan’s truck sales dropped even more than its car sales -– by 17.3 percent. Midsize SUV sales fell 24.5 percent.

HONDA

American Honda sales, which include Honda and Acura vehicles, were down 1.6 percent.

The Good

Sales of the CR-V SUV soared 39.4 percent.

Honda has a promising new Accord on the way this fall along with a redesigned Pilot.

Acura’s new MDX and RDX are selling well.

The Bad

Acura sales dropped 15 percent, mainly due to slow car sales.

The Ugly

Sales are down and incentives are soaring. That’s a bad equation.

Honda’s incentives averaged $1,169 a vehicle in April, up 68.3 percent from $635 in April 2006. And certain models saw astronomical percentage increases in incentive spending.

Incentive spending on the Accord, which Honda is winding down to make room for the new model, was up 224 percent, $587 in April from $1,899 in April 2006. Civic incentives soared 455 percent, to $488 from $88. And Element incentives skyrocketed 449 percent, $899 from $165.

Still, Honda’s incentive spending isn’t close to those of domestic automakers. They’d be thrilled to have average incentives per vehicle skyrocket by triple-digit percentages –- and still be in the hundreds, not thousands of dollars.

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