December Incentives Set Record, Edmunds.com Estimates
January 05, 2009

By Michelle Krebs

SANTA MONICA, Calif. -- Automaker incentives set a new record in December, Edmunds.com estimates, and, surprisingly, leasing showed a remarkable jump despite reports of its demise.

"Never before has the December average incentive been this high," said Jesse Toprak, Edmunds.com's executive director of Industry Analysis. "Automakers have been pulling out all the stops to keep motivating shoppers during these tough times."

Slowing sales have struck virtually every automaker and every market segment. U.S. auto industry sales for December and the full-year of 2008 are being reported Monday. December sales are expected to look a lot like the dismal levels of October and November -- and down from in the neighborhood of 30 percent or more from December 2007. Full-year sales are likely to be the worst since 1992.

Ford's chief sales analyst George Pipas told reporters Friday that he is predict total industry sales for 2008 of about 13.5 million, 3 million less than in 2007. U.S. sales haven't dropped by 3 million units since 1974. And that doesn't take into consideration the increase in driver-eligible population. Pipas noted that since the early 1980s, 70 million more people can drive, putting 2008 at the worst per capita sales level since 1982.

As a result of precipitously falling sales, automakers have been doing whatever they can to lure customers to the showroom. Even Toyota has doubled incentives from what they were a year ago.

Hyundai's Got Your Back Promotion

Last week, Hyundai launched a unique program that allows the customer to return any Hyundai vehicle they purchase within a year if they find they can no longer make the car payments because of a change in circumstances, such as a job loss, medical issue or bankruptcy.

Already promoting it on television and in print ads with the tag line "We've got your back," Hyundai's Assurance Program is designed after a similar program Hyundai offers in Canada through the U.S.-based Walkaway company that also handles Hyundai's warranty program. Since its introduction in Canada in 2000, Walkaway has made it possible for consumers to walk away from over $35 million in automotive-related debt, Company President Paul Budvitis said.

"In this uncertain economy, we are looking for ways to reassure shoppers that Hyundai still represents the best value in the auto industry," said John Krafcik, acting president and CEO, Hyundai Motor America. "Our agreement with Walkaway allows us to offer a unique form of financial protection in all 50 states for the first time by an automaker."

Incentive Messages Resonate

While it had appeared that incentives might be reaching the point of diminishing returns, some incentives messages are resonating with buyers. Edmunds.com site traffic for the last week of December indicated nearly a 50-percent increase in purchase intent and dealer price quote requests. Dealers reported that they did 40 percent of December business during the last week of the month, thanks to an unexpected flurry of customers that left some dealerships short-staffed.

"Normally, I would say that such an increase in the last week of December is just at the high end of the usual seasonal pattern, but in the current environment I would say that it is dramatically good news," said Edmunds.com Senior Analyst David Tompkins, PhD.

General Motors especially benefited from renewed automotive consumerism once its financing arm, GMAC, qualified to receive federal loans and started offering increased financing incentives to a broader range of consumers. Since that program was announced, GM vehicle research increased 33 percent on Edmunds.com while all other automakers were up only 20 percent. 

Leasing Climbs
 
Interestingly, leasing has been climbing since the financial industry collapse in September. Before the implosion, leasing represented only 10 percent of total new car sales, the lowest level in recent history. In December, leasing represented about 13 percent of new car sales, nearing or exceeding 50 percent for luxury brands such as Audi, BMW, Infiniti and Mercedes-Benz.  
 
"Luxury automakers are finding their best success in marketing low lease rates now that consumers are very conscious of their monthly cash flow," observed Toprak. "Leasing allows consumers to get a lot of car for the money, with no long-term commitment, and that is a very desirable proposition in today's economy."

By the Numbers

The average automotive manufacturer incentive in the U.S. was $2,920 per vehicle sold in December, up $221, or 8.2 percent, from November 2008, and up $443, or 18 percent, from December 2007 when the average was $2,367, according to Edmunds.com.

Combined incentives spending for domestic manufacturers averaged $3,778 per vehicle sold in December, down from $3,554 in November. From November to December, European automakers increased incentives spending by $451 to $2,963 per vehicle sold; Japanese automakers increased incentives spending by $57 to $1,738 per vehicle sold; and Korean automakers decreased incentives spending by $141 to $2,466 per vehicle sold.

In December, the industry's aggregate incentive spending is estimated to have totaled approximately $2.5 billion, up 23.8 percent from November 2008. Chrysler, Ford and General Motors spent an aggregate of $1.6 billion, or 65.4 percent of the total; Japanese manufacturers spent $536 million, or 21.7 percent; European manufacturers spent $232 million, or 9.4 percent; and Korean manufacturers spent $89 million, or 3.6 percent.

Among vehicle segments, premium luxury cars had the highest average incentives, $6,601 per vehicle sold, followed by large trucks at $5,434. Subcompact cars had the lowest average incentives per vehicle sold, $482, followed by compact cars at $1,194.

Analysis of incentives expenditures as a percentage of average sticker price for each segment shows large trucks averaged the highest, 16.5 percent, followed by large cars at 11.8 percent of sticker price.Subcompact cars averaged the lowest with 3 percent and sport cars followed with 4.5 percent of sticker price.

Comparing all brands, in December Mini spent virtually nothing followed by Scion at $145 per vehicle sold. At the other end of the spectrum, Lincon spent the most, $5,975 per vehicle, followed by Saab at $5,508 and GMC at $4,677 per vehicle sold. Relative to their vehicle prices, Mercury and Jeep spent the most, 15.4 percent and 15.2 percent of sticker price, respectively; while Mini spent virtually nothing and Scion spent 0.9 percent. 

True Cost of Incentives for the "Big Six" Automakers
Automaker	December 2008	November 2008	December 2007
Chrysler Group	$3,667	$3,514	$3,283
Ford	$4,029*	$3,818	$2,919
General Motors	$3,661	$3,350	$3,490
Honda	$1,218	$1,115	$1,031
Nissan	$2,251	$2,248	$2,065
Toyota	$1,995	$2,005*	$1,067

* Denotes a monthly record for the indicated automaker.

Source: Edmunds.com

Edmunds.com's monthly True Cost of Incentives (TCI) report 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. 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.

 

Posted by Michelle Krebs at 6:36 AM under Analysis , Chrysler , Companies , Featured , Ford , GM , Toyota | Comments (2) | digg this | Seed Newsvine

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