Soft Sales Test Automakers' Resolve to Restrain Incentive Spending
By Michelle Krebs September 29, 2009Automakers will have their resolve to scaleback incentive 
spending tested in the coming months as their assembly plants ramp up production to beef up inventory and sales continue to be soft.
Incentives on General Motors, Ford and Chrysler vehicles plummeted by 26 percent to $3,278 per vehicle in August from a March peak, according to Edmunds.com, parent of AutoObserver.com. Industrywide incentives fell 22 percent to $2,474 per vehicle.
"Automakers have to pull the lever and increase production in an unknown market," Edmunds.com Senior Analyst Jessica Caldwell told Bloomberg News. "They could find there are no buyers out there and have to raise incentives again. It's a vicious circle."
Edmunds.com forecasts September sales will come in at an annual rate of 9.34 million vehicles, a 34-percent drop from August. Automakers post sales reports on Thursday. Edmunds.com will issue its estimates for September incentive spending Thursday as well.
Photo by Chrysler
Automakers have been ramping up production to replenish inventories drawn down by the summer's Cash for Clunkers program.
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I really don't understand why automakers feel they must have a surplus at all times. If I were running the show, I'd keep inventories down, marketshare be damned.
Instant economy. While it would be more efficient and far less costly to have all cars ordered out, an OEM or its dealers won't risk having you pass them by because the dealer across the street has what you want right there.
But just think of the money that's spent on dealer real estate, floorplan interest, insurance & taxes and all the rest associated with maintaining an inventory. Could there be enough of a savings to the consumer for a dealer to operate a 100% factory order new car department?
We have read here in EAO about flexible manufacturing plants and building many more model derivations off of a single platform; could an OEM be flexible enough to be profitable building all of its models at all of its plants, thus providing shorter build times and faster response to market trends?
Nah.
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