Record Incentives Soar to as Much as 20 Percent of Sticker Price, Edmunds.com Estimates

Record Incentives Soar to as Much as 20 Percent of Sticker Price, Edmunds.com Estimates

By Michelle Krebs March 3, 2009

SANTA MONICA, Calif. -- The word "incentive" hardly applies to the record-setting cash rebates, low-interest rates and various offers that auto manufacturers have put out there. No matter how good the deal, they aren't incentivizing buyers.

As February sales being reported by automakers Tuesday will show, consumers weren't lured into showrooms by even the best offers in ages -- some of them representing discounts of up to 20 percent of a vehicle's sticker price, according to estimates by Edmunds.com. Instead would-be car buyers apparently are waiting for a boost of economic confidence before making such a major purchase as a car.

The average automaker incentive in the U.S. was $2,914 per vehicle sold in February, up $216, or 8 percent, from January, and up $400, or 15.9 percent, from February 2008, according to Edmunds.com's analysis.

"The last time sales were at this level was in the early 1980s, when the country had 25 percent fewer licensed drivers," said Jesse Toprak, executive director of Industry Analysis for Edmunds.com, parent of AutoObserver.com. "Back then, you could practically buy a new car for the amount that some of today's automakers are spending on per-vehicle incentives."

And yet those rich incentives failed to move the sales needle in February. Edmunds.com forecasts when U.S. vehicle sales for February are tallied at the end of Tuesday, they will be down about 40 percent from a year ago to 685,000 vehicles. That would put the closely watched Seasonally Adjusted Annual Rate (SAAR) for the month at 9.3 million vehicles, down from 9.6 million the previous month.

The Incentive Breakdown

Combined incentives spending for domestic manufacturers averaged $3,991 per vehicle sold in February, up from $3,518 in January. From January to February, European automakers increased incentives spending by $67 to $3,150 per vehicle sold; Japanese automakers decreased incentives spending by $77 to $1,698 per vehicle sold; and Korean automakers increased incentives spending by $102 to $3,031 per vehicle sold.
 
In February 2009, the industry's aggregate incentive spending is estimated to have totaled approximately $1.9 billion, up 12.5 percent from January 2009. Chrysler, Ford and General Motors spent an aggregate of $1.2 billion, or 59.8 percent of the total; Japanese manufacturers spent $472 million, or 23.7 percent; European manufacturers spent $173 million, or 8.7 percent; and Korean manufacturers spent $154 million, or 7.8 percent.
 
Among vehicle segments, premium sport cars had the highest average incentives, $6,331 per vehicle sold, followed by luxury SUVs at $4,329. Subcompact cars had the lowest average incentives per vehicle sold, $762, followed by compact cars at $1,578.

Analysis of incentives expenditures as a percentage of average sticker price for each segment shows large trucks averaged the highest, 13.1 percent, followed by large cars at 13 percent of sticker price. Subcompact cars averaged the lowest with 4.7 percent and premium luxury cars followed with 5.1 percent of sticker price.

Comparing all brands, in February Scion spent $70 followed by Mini at $86 per vehicle sold. At the other end of the spectrum, Chrysler spent the most, $6,061, followed by Dodge at $5,674 per vehicle sold. Relative to their vehicle prices, Chrysler and Dodge spent the most, 20.7 percent and 19 percent of sticker price, respectively; while Mini spent virtually nothing and Scion spent 0.4 percent.

True Cost of Incentives for the "Big Six" Automakers
Automaker	February 2009	January 2009	February 2008
Chrysler Group	$5,566*	$4,291	$3,520
Ford	$3,430	$3,505	$3,317
General Motors	$3,584	$3,138	$3,328
Honda	$1,249	$1,374	$1,209
Nissan	$2,509	$2,153	$2,159
Toyota	$1,744	$1,994	$1,044
Industry Average	$2,914	$2,698	$2,514

Source: Edmunds.com

* Denotes a monthly record for the indicated automaker.

Edmunds.com's monthly True Cost of Incentives^SM (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.

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