Incentives on the Rise through Year-End, Edmunds.com PredictsBy Michelle Krebs October 1, 2009
After five straight months of decline, incentives are on the rise again, according to Edmunds.com.
The average manufacturer incentive totaled $2,557 per vehicle sold in September, up $83 or 3.4 percent from August, Edmunds.com estimates. That was down $344, or 11.9 percent from September 2008.
This summer's Cash for Clunkers program substituted as a manufacturer incentive but with the program over and vehicle inventories being replenished, consumers aren't buying, as will be seen when automakers report September sales Thursday. Edmunds.com forecasts sales for the month will come in at only about a 9.3 million Seasonally Adjusted Annual Rate (SAAR).
Now customers need a reason to buy.
"With Cash for Clunkers over, automakers have to give consumers an incentive to buy -- out of their own pockets, not the taxpayers," said Jessica Caldwell, director of Industry Analysis for Edmunds.com. She noted the rise of incentives is likely to continue through year-end.
Chrysler and General Motors, both of which recently emerged from bankruptcy and are struggling to gain some sales traction, along with Honda followed the industry trend of incentives being up from August but down from last September.
In contrast, both Ford and Hyundai, which have been gaining momentum throughout the year and got a big boost from Cash for Clunkers, are paying less in incentives from August as well as from last September. Momentum and low inventories due to success with Cash for Clunkers has allowed them to scale back incentives, which is a winning combination for boosting moneymaking. In addition, Hyundai had been extremely aggressive with incentives and marketing in the past year that paid off in advancing sales and market share so low inventories allow the Korean automaker a breather.
Toyota's incentive spend in September was down from August but up from last September. The automaker, which this week announced a potentially image-damaging recall of 3.8 million vehicles, has vowed to spend $1 billion in the fourth quarter on marketing and incentives to try to regain ground.
Nissan spending in September was up from August as well as September.
Sky-High Sports Car Incentives
Manufacturer set a new record of incentive spending -- $10,128 per vehicle sold in September - in the premium sports car category, Edmunds.com estimates. September shattered the previous high of $7,347 per vehicle spent vehicle in April 2004.
One of the heftiest rebates in September was on the 2009 Cadillac XLR-V, which is being phased out. GM offered up to $10,000 in rebates or 4.9 percent financing, a deal it has extended through Nov. 2. The 2009 Cadillac STS-V was available during September with zero-interest financing. In October, the rate jumps to 5.9 percent, but cash rebates of up to $3,000 are extended. Both Cadillac models also make a $4,000 incentive available to lease customers.
Some of the incentives come in the form of special low interest rates on car loans. In fact, the special interest rates being offered instead of taking a loan with the going interest rate can save a sports-car buyer $20,000 to $30,000, Edmunds.com analysts calculate.
For example, BMW is offering a .9 percent rate on the 6 Series and the M6 through Nov. 2. In addition, BMW is paying a $6,000 incentive to its dealers, some or all of which can be passed onto the customer. Or knowing the hefty rebate is going to dealers, consumers can drive a harder bargain.
Mercedes-Benz offered buyers 1.9 percent to 2.9 percent financing on the 2009 Mercedes-Benz CLS-Class in September, a deal that has expired with no word if it will be continued.
Premium luxury cars followed premium sports cars in spending at $6,551 per vehicle. Subcompact cars had the lowest average incentives per vehicle sold, $1,309, followed by compact cars at $1,477.
"High-end luxury cars are unpopular right now in part because the segments have lost many of the aspirational buyers who stretched to make the payments when the economy was stronger, and in part because some feel socially insensitive splurging on a flashy vehicle during these challenging economic times," said Caldwell.
Analysis of incentives expenditures as a percentage of average sticker price for each segment shows large cars averaged the highest, 13.5 percent, followed by large trucks at 12.8 percent of sticker price. Minivans averaged the lowest with 5.8 percent and compact SUVs followed with 6.9 percent of sticker price.
Comparing all brands, in September Scion spent $311 followed by Honda at $808 per vehicle sold. At the other end of the spectrum, Cadillac spent the most, $9,233, followed by BMW at $6,321 per vehicle sold. Relative to their vehicle prices, Cadillac and Pontiac, which is being discontinued, spent the most, 18.6 percent and 16.8 percent of sticker price, respectively; while Scion spent 1.8 and Honda spent 3.3 percent.
Incentive Spending Breakdown
Combined incentives spending for domestic manufacturers averaged $3,514 per vehicle sold in September 2009, up from $3,232 in August. European automakers decreased incentives spending by $382 to $3,354 per vehicle sold in September compared with August. Japanese automakers decreased incentives spending by $64 to $1,514 per vehicle sold in September versus August. Korean automakers decreased incentives spending by $658 to $1,913 per vehicle sold.
In September, the industry's aggregate incentive spending is estimated to have totaled approximately $1.8 billion, down 39.4 percent from August 2009. Chrysler, Ford and General Motors spent an aggregate of $1.1 billion, or 58.6 percent of the total; Japanese manufacturers spent $471 million, or 25.1 percent; European manufacturers spent $215 million, or 11.4 percent; and Korean manufacturers spent $93 million, or 4.9 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. -- Michelle Krebs, Senior Analyst and Editor at Large
Photo by GM
1 - 2009 Cadillac XLR-V is in its last year.