Automakers Spend Less on August Incentives, Thanks to Cash for Clunkers
By Michelle Krebs September 1, 2009With American taxpayers footing the bill for Cash for Clunkers, automakers were able to lower their spending on incentives in August. And, in fact, automakers may still have paid more than they needed to in incentives.
The average automotive manufacturer incentive was $2,475 per vehicle for every vehicle sold in August, Edmunds.com estimates. That's down $231, or 8.5 percent, from July and down $327, or 11.7 percent, from August 2008, continuing a downward trend of several months.
"The industry spent a record $3,165 per vehicle in March, but ever since then, incentives have continuously fallen," said Jessica Caldwell, Edmunds.com's director of Industry Analysis.
However, the story may change in the coming months, she added, with the Cash for Clunkers program over, vehicle inventories low due to production cutbacks and brisk clunker sales. But now, factories are ramping up production to fill up the pipeline again -- production that may come into a market that isn't in the mood for buying.
Industrywide Numbers
Combined incentives spending for domestic manufacturers averaged $3,193 per vehicle sold in August, down from $3,617 in July, according to Edmunds.com's estimates. Japanese and Korean automakers also reduced their incentives spending. Japanese automakers decreased incentives spending by $11 to $1,571 per vehicle sold; and Korean automakers decreased theirs by by $523 to $2,504 per vehicle sold.
In contrast, European automakers, most of which make largely luxury vehicles that weren't eligible as clunker trades because of their $45,000 plus price tags, actually increased incentives spending by $289 to $3,751 per vehicle sold. The European manufacturers, in total, spent $299 million, or a near record 10.3 percent of the total industry's spend on incentive. In fact, Germany's BMW was one of the industry's biggest spenders in August, Edmunds.com estimates.
Only two other months before have Europeans accounted for such a big chunk of the total pie. In July 2008 and May this year, the Europeans accounted for 10.5 percent of the industry's incentive spend.
In total, the industry's total incentive spending came to approximately $2.9 billion, up 7.6 percent from July. Of that, Chrysler, Ford and General Motors spent an aggregate of $1.5 billion, or 53.6 percent of the total. Japanese manufacturers spent $778 million, or 26.8 percent; and Korean manufacturers spent $270 million, or 9.3 percent.
By Segment, Brand
In that same vein, premium luxury cars, which were too expensive to be eligible for Cash for Clunkers trades, had the highest average incentives, $5,931 per vehicle sold. They were followed by premium sport cars at $5,791. Sales of expensive sports cars have plummeted in recent months due to the recession. Porsche sales, for instance, are about half what they were a year ago.
In contrast, subcompact cars, among the most popular choices for clunker trades, had the lowest average incentives per vehicle sold, $1,314, followed by sport cars at $1,862.
As a percentage of average sticker price , compact trucks averaged the highest at 11.4 percent, suggesting automakers may have gotten away with doling out far less for these trucks because they proved to be another popular selection with clunker traders.
For instance, the Ford Ranger, despite being long in the tooth and threatened with being eliminated in the past, sold like wildfire through the Cash for Clunkers program to the point that Ford is low on Ranger inventory. The automaker recently announced plans to boost Ranger production in the fourth quarter.
As a percentage of average stick price, large cars came in second at 11.1 percent of sticker price, less of a surprise than compact trucks.
Sport cars averaged the lowest with 5.9 percent and premium sport cars followed with 6.1 percent of sticker price.
Brand Spending
Comparing all brands, Scion spent $235 followed by smart at $422 per vehicle sold. Scion is often one of the lowest spenders as is BMW's Mini. However, Mini appears to be increasing incentives from none to some -- around $800 due to its low-interest financing promotion.
At the other end of the spectrum, Cadillac spent the most at $6,121, followed by BMW at $6,010 per vehicle sold. Relative to their vehicle prices, Pontiac and Volvo spent the most, 17.3 percent and 15.9 percent of sticker price, respectively; while Scion spent the least at 1.4 and smart spent 2.9 percent.
General Motors has said Cash for Clunkers was so successful for Pontiac that the automaker will be able to wind down the brand earlier than anticipated as inventories are running very low. That will also be helpful to GM financially as well since the automaker won't have to offer expensive incentives on its own to get rid of the last Pontiac models.
Source: Edmunds.com
Edmunds.com's monthly True Cost of Incentives 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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