High Incentives Spending May Be Hurting Some More than Helping, Says Edmunds.com
By Michelle Krebs May 1, 2009SANTA MONICA, Calif. - Sky-high incentives spending is reaching a point of diminishing returns and actually may be hurting some automakers more than helping.
"For some automakers, March's high incentives diluted brand image and hurt residual values while delivering only a negligible lift in sales," said Jesse Toprak, executive director of Industry Analysis for Edmunds.com. "The April sales reports may prove that there is a point of diminishing returns for incentives spending."
The average automotive manufacturer incentive in the U.S. was $3,031 per vehicle sold in April, down $134, or 4.2 percent, from March but up $680, or 28.9 percent, from April 2008, accordingto Edmunds.com's estimates.
Combined incentives spending for domestic manufacturers averaged $3,959 per vehicle sold in April, down from $4,465 in March. From March to April, European automakers increased incentives spending by $26 to $3,410 per vehicle sold; Japanese automakers increased incentives spending by $132 to $1,740 per vehicle sold; and Korean automakers increased incentives spending by $87 to $3,591 per vehicle sold.
The industry's aggregate incentive spending was estimated to have totaled approximately $2.6 billion in April, down 3.8 percent from March. Chrysler, Ford and General Motors spent an aggregate of $1.5 billion, or 59.5 percent of the total; Japanese manufacturers spent $575 million, or 22.1 percent; European manufacturers spent $257 million, or 9.9 percent; and Korean manufacturers spent $221 million, or 8.5 percent.
With industry sales down 34 percent from last April, incentives seemed to do little to bolster sales. Still, automakers seem to be playing a game of chicken - all are waiting for the other guy to drop back first. They seem to fear bottom falling out completely if they back down on incentives.
Among vehicle segments, premium sport cars had the highest average incentives, $6,540 per vehicle sold, followed by large SUVs at $4,797. Subcompact cars had the lowest average incentives per vehicle sold, $1060, followed by compact cars at $1,893.
Analysis of incentives expenditures as a percentage of average sticker price for each segment shows large car averaged the highest, 14.0 percent, followed by large trucks at 13.0 percent of sticker price. Premium luxury cars averaged the lowest with 4.5 percent and subcompact cars followed with 6.7 percent of sticker price.
Comparing all brands, in April Scion spent the least, $160 per vehicle sold, followed by Subaru at $884. At the other end of the spectrum, Cadillac spent the most, $5,675 per vehicle sold, followed by Infiniti at $5,504. Relative to their vehicle prices, Kia and Mercury spent the most, 20.9 percent and 16.2 percent of sticker price, respectively; while Scion spent 0.9 and Lexus spent 3.3 percent.
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.
|
True Cost of Incentives for the Top Seven Automakers |
|||
|
Automaker |
April 2009 |
March 2009 |
April 2008 |
|
Chrysler Group (Chrysler, Dodge, Jeep) |
$4,288 |
$4,889 |
$3,795 |
|
Ford (Ford, Lincoln, Mercury, Volvo) |
$3,636 |
$3,673 |
$2,989 |
|
General Motors (Buick, Cadillac, Chevrolet, |
$4,063 |
$4,772* |
$3,132 |
|
Honda (Acura, Honda) |
$1,439* |
$1,334 |
$1,405 |
|
Hyundai (Hyundai, Kia) |
$3,591* |
$3,504 |
$2,156 |
|
Nissan (Infiniti, Nissan) |
$2,779* |
$2,234 |
$1,796 |
|
Toyota (Lexus, Scion, Toyota) |
$1,648 |
$1,565 |
$840 |
|
Industry Average |
$3,031 |
$3,165* |
$2,351 |
* Denotes a record
Source: Edmunds.com
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