Standoff: Automakers Continue Supply, Incentives Discipline; Consumers Await Deals
By Michelle Krebs September 1, 2010By and large, automakers are sticking to their guns by keeping inventories and incentives in check, and their discipline may be leading to a standoff with consumers who appear to be awaiting awesome deals like those of the past.
Edmunds.com estimates the average automotive incentive in August declined from July, as is the historic pattern. They were up from last August, however, that's an almost useless comparison due to the anomaly in sales and incentives caused by the government's Cash for Clunkers program being in full swing.
Edmunds.com estimates the average incentive was $2,681 per vehicle sold in August, down $84, or 3.0 percent, from July, but up $225, or 9.2 percent, from last August.
At the same time, vehicle inventories remain low. Edmunds.com's calculations show it now takes only about 50 days to sell the average vehicle after it arrives at a dealership; last year at thist time, it took more than 70 days to turn a vehicle.
The result is expected to be August sales posted by automakers today holding steady from July at a Seasonally Adjusted Annual Rate (SAAR) of 11.8 million vehicles, according to Edmunds.com's forecast. The Cash for Clunkers-fueled SAAR of last August was 14.1 million vehicles.
"Historically, August incentives are lower than in July because there is less old model year inventory to sell by then," noted Edmunds.com Analyst Ivan Drury. "As a rule, at this time of year, total incentive costs directly correlate to old model year inventory. The brands with less 2010 inventory to sell down are able to reduce their incentives."
Big 6 Sales Forecast, Incentives Spend
Nissan is being a bit of a renegade, being the only automaker among the Big 6 that Edmunds.com estimates spent more on incentives in August than in July and August 2009. In fact, Edmunds.com estimates Nissan may have set a new personal record for incentives spending. Still, Nissan, including the Nissan and Infiniti brands, are forecasted to post an August-to-August sales decline of 27 percent.
Chrysler and Ford are spending a scant more than July but a bit less than they were spending a year ago. Edmunds.com forecasts Chrysler will be the only automaker among the Big 6 to post a year-over-year sales increase -- an increase of 7 percent. Ford is expected to post a sales decline of about 10 percent, a significantly smaller sales drop than the rest of the Big 6 aside from Chrysler.
General Motors, Toyota and Honda are estimated to have spent less in August than July, but more than last August. Edmunds.com forecasts that all three will show year-to-year sales drops of more than 20 percent; in the case of Toyota and Honda, which were big beneficiaries of Cash for Clunkers, the sales fall is likely to be closer to 30 percent.
By the Numbers
Combined incentives spending for domestic manufacturers are estimated by Edmunds.com to have averaged $3,405 per vehicle sold in August, down from $3,589 in July. European automakers increased incentives spending by $187 to $2,643 per vehicle sold from July to August. Japanese automakers decreased spending by $44 to $2,083 per vehicle sold. Korean automakers lowered spending by $88 to $1,819 per vehicle sold.
The total industry spend on August incentives is estimated at approximately $2.76 billion, down 4.7 percent from July. Chrysler, Ford and General Motors spent a combined $1.5 billion, or 55.0 percent of the total. Japanese manufacturers spent $845 million, or 30.6 percent of the total. European manufacturers spent $238 million, or 8.6 percent; and Korean manufacturers spent $158 million, or 5.7 percent.
Among vehicle segments, premium sport cars had the highest average incentives at $8,221 per vehicle sold, followed by large trucks at $4,359. Subcompact cars had the lowest average incentives per vehicle sold, $1,215, followed by sport cars at $1,422. Analysis of incentives expenditures as a percentage of average sticker price for each segment shows large cars averaged the highest, 12.9 percent, followed by large trucks at 11.8 percent of sticker price. Premium luxury cars averaged the lowest with 3.4 percent and sport cars followed with 3.9 percent of sticker price.
Comparing all brands, in August Scion spent the least at $497 per vehicle sold, followed by smart at $502 per vehicle sold. At the other end of the spectrum, Lincoln spent the most, $4,832, followed by Saab at $4,790 per vehicle sold.
Relative to their vehicle prices, Mercury and Chrysler spent the most, 14.8 percent and 13.5 percent of sticker price, respectively; while Subaru spent only 2.0 percent and Porsche spent only 2.7 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.
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