Incentives Set All-Time Record, Edmunds.com Reports

Incentives Set All-Time Record, Edmunds.com Reports

By Michelle Krebs

SANTA MONICA, Calif. -- Automaker incentives set a new all-time high in March, even though it appears they didn't help sales much, according to Edmunds.com .

The average automotive manufacturer incentive was $3,169 per vehicle sold in March, the highest industry average on record.

"Automakers are pulling every lever in their effort to attract buyers, as evidenced by the new programs from Ford and General Motors," stated Jesse Toprak, Edmunds' executive director of Industry Analysis. "The typical incentive programs simply do not resonate in today's economy."

Indeed, automakers report March sales figures Wednesday, and sales are expected to be weak again at a time of year when sales typically are their strongest. Edmunds.com forecasts March sales will come in at 774,000 vehicles sold, down more than 40 percent from March 2008 and up only half of the hike typically experienced between February and March. March sales will come in at an expected Seasonally Adjusted Annualized Rate of a meager 8.9 million vehicles. 

In an effort to find something that does resonate with consumers, General Motors and Ford announced new comprehensive incentive plans on Tuesday. In addition to incentives such as zero-percent financing, the two companies are offering payment protection plans like Hyundai began offering in January and AutoNation, the country's largest dealership chain, started rolling out last week. The automakers pick up the monthly payments of buyers who lose their jobs. GM also threw in a protection element to ensure the worth of a person's trade-in.

And even the government has jumped into the act. On Monday, President Barack Obama said the government would guarantee the warranties of vehicles sold by troubled GM and Chrysler, provide a break on sales and excise taxes on vehicle purchases this year and push Congress to pass a "scrappage" or cash for clunker program.

Record Incentives

Edmunds' estimate of a $3,169 paid for every vehicle sold in March, represents an increase of $171, or 5.7 percent, from February, and up $733, or 30.1 percent, from March 2008. It beats the previous record of $3,146 per vehicle set in September 2004 when zero-percent financing was extremely popular.

In March, the industry's aggregate incentive spend is estimated to have totaled approximately $2.4 billion, up 19 percent from February. Chrysler, Ford and GM, which set a new record for monthly incentive spending, spent a combined $1.5 billion, or 61.9 percent of the total; Japanese manufacturers spent $511 million, or 20.8 percent; European manufacturers spent $227 million, or 9.3 percent; and Korean manufacturers spent $196 million, or 7.9 percent.

Spending by Detroit automakers combined average $4,505 per vehicle sold in March, up from $4,134 in February.

European automakers also increased spending from February to March by $326 per vehicle to $3,398 per vehicle. Korean automakers increased spending by $360 to $3,572 per vehicle sold. Japanese automakers decreased incentives spending by $58 to $1,628 per vehicle sold.

Hyundai, which set a new record for incentive spending, has been particularly aggressive to grab market share when other automakers are down and help South Korea boost its sagging exports. Since January when the Hyundai Genesis won the 2009 North American Car of the Year award and the automaker launched its now-copied Hyundai Assurance payment protection plan, Hyundai has gained a lot of momentum and is spending large sums of money to capitalize on its building momentum.

Among vehicle segments, premium sports cars had the highest average incentives, $6,972 per vehicle sold, followed by large SUVs at $5,323. Subcompact cars had the lowest average incentives per vehicle sold, $949, followed by compact cars at $1,830.

Analysis of incentives expenditures as a percentage of average sticker price for each segment shows large cars averaged the highest, 14.9 percent of sticker price, followed by large trucks at 14.6 percent. Premium luxury cars averaged the lowest with 3.63 percent of sticker price, and subcompact cars followed with 5.8 percent.

Comparing all brands, Scion spent the least, $87, followed by Mini at $553 per vehicle sold. At the other end of the spectrum, Cadillac spent the most, $6,839, followed by Lincoln at $5,942 per vehicle sold.

Relative to their vehicle prices, Kia and Chrysler spent the most, 22.6 percent and 17.6 percent of sticker price, respectively; while Scion spent 0.5 and Mini spent 2.5 percent.

* Denotes a 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.

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