July Incentives Set 2008 Records, Edmunds.com Estimates
By Michelle Krebs July 31, 2008By Michelle Krebs
SANTA MONICA, Calif. -- With automakers expected to report Friday that car and truck sales plunged to near-historic lows in July, it's no surprise that manufacturer incentives have reached all-time highs for the year.
Edmunds.com's estimates put July at the industry's highest level of incentive spending for the year so far and the highest level this year for not only for the domestic automakers but also the Japanese and European manufacturers.
Edmunds.com estimates that the average automotive manufacturer incentive in the U.S. was $2,611 for every vehicle sold in July 2008. That's up $166, or 6.8 percent, from June 2008, and up $90, or 3.6 percent, from July 2007. While that marks the highest level of spending for the year, it is not an industry record. That was set in September 2004 with $3,146 spent per vehicle sold.
In July 2008, the industry's aggregate incentive spending is estimated to have totaled approximately $3.29 billion, up 6.2 percent from June 2008.
Automakers are pulling out the stops to push the slow-moving metal. That was especially true near month's end when they saw how poor sales would be.
July sales, being reported Friday, by manufacturers are predicted to fall 10.7 percent from last July, adjusted for the difference in the number of selling days. The decrease is estimated at 3.3 percent on an unadjusted basis. Despite some last-ditch incentive efforts to save the month, all of the Big Six auto manufacturers, with the exception of Honda, are expected to report sales declines from a year ago. Similarly, sales of small compact vehicles continued to boom while sales of trucks and SUVs languish.
Domestics Spend the Most
Edmunds.com estimates combined incentives spending for domestic manufacturers averaged $3,741 per vehicle sold in July 2008, up from $3,382 in June 2008. That is the highest level of spending by the domestic makers, who are suffering the worst in this downturn, so far this year. All three are expected to report double-digit sales declines for July, on a basis adjusted for the difference in selling days.
In aggregate, Chrysler, Ford and General Motors spent an aggregate of $2.1 billion, or 62.4 percent of all incentive spending.
General Motor leads incentive spending at $4,214 spent per vehicle sold. While the highest level this year, it is not a record. GM spent $4,570 per vehicle in September 2004, which led the industry to a new record.
Still, Japanese automakers also increased their incentive spending a tad, pushing it to new highs for the year. From June to July, Japanese automakers combined increased incentive spending by $5 to $1,394 per vehicle sold. In total, Japanese manufacturers spent $734 million, or 22.3 percent of the total.
European automakers boosted spending by $474 to $3,335 per vehicle sold from June to July, their highest level for the year. In total, they spent $337 million, or 10.2 percent of all incentive spending.
Korean automakers Kia and Hyundai increased spending by $106 to $2,064 per vehicle sold. Combined, they spent $167 million, or 5.1 percent. They had higher incentives in March and April than in July.
Big Vehicles, Big Spends; Small Vehicles, Small Spends
Among vehicle segments, large SUVs, not surprisingly since they are showing the deepest sales declines, had the highest average incentives at $6,199 per vehicle sold. Large trucks followed at $5,424.
Conversely, compact cars had the lowest average incentives per vehicle sold, at $1,001. Compact SUVs followed at $1,473.
An analysis of incentives expenditures as a percentage of average sticker price for each segment shows large trucks averaged the highest at 16.7 percent, followed by large SUVs at 16.0 percent of sticker price. Sport cars averaged the lowest, 5.5 percent, followed by compact cars at 5.6 percent of sticker price.
Comparing all brands, in July, the newly introduced smart from Mercedes-Benz spent virtually nothing followed by always-low-spender Mini at $24 per vehicle sold.
At the other end of the spectrum, Saab spent the most at $8,326 per vehicle, followed by Cadillac at $7,933 per vehicle sold. Relative to their vehicle prices, Saab and Hummer spent the most, 23.4 percent and 20.1 percent of sticker price, respectively; while Smart spent near zero percent and Mini spent just 0.1 percent. The Hummer H2, in fact, ranked No. 1 in incentives, with an $8,000 rebate.
Tapering Back
Automakers are planning to do some shifting around of incentives. As they cut back on leasing, they likely will boost incentives on more popular lease deals. GM already has signaled that it would offer zero percent financing for 60 and 72 months to lure payment-conscious lease buyers into financing instead of leasing.
Overall, Edmunds.com forecasts that incentives will taper back from July highs this fall.
"We anticipate that the fall introduction of 2009 model-year vehicles will cause overall industry level incentives to decline in the coming months," said Jesse Toprak, executive director of Industry Analysis Edmunds.com.
Edmunds.com's monthly True Cost of Incentives (TCI) takes into account all automakers' various U.S. incentives programs, including subvented interest rates and lease programs, as well as cash rebates to consumers and dealers. Calculations are sales weighted.
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