How Honda Spent Its Record-High April Incentive MoneyBy Michelle Krebs May 4, 2010
American Honda, which includes the Honda and Acura brands, spent more money on incentives in April than it had ever spent in a month, and its investment paid off with the highest Honda sales since last August, according to Edmunds.com's analysis.
Still, Honda's April sales were up only 13 percent from a year ago, far below the industry average of 20 percent.
Where Honda Spent Its Incentive Money
Honda spent most of its incentive funds on discounted leases. The automaker spent an average of $1,818 per vehicle sold subsidizing discounted leases in April. Edmunds.com's analysis shows 34 percent of Honda's transactions in April were leases - its highest ever levelin Edmunds.com's tracking.
Honda spent $866 per vehicle on low-interest financing to consumers and $808 on incentives to dealers, instead of directly to customers.
Except for Toyota, Honda was the only manufacturer to spend more on incentives in April than it did last April and more than it did in March. In fact, Honda set a new record of $1,787 per vehicle paid in incentives in April, according to Edmunds.com's estimates. Honda spent $1,785 per vehicle in March and $1,480 in April 2009.
"Hopefully, for Honda's sake, the automaker's recent high incentives spending is strictly a reaction to the competition, specifically Toyota's aggressive incentives, and the market, which is in a fragile recovery mode, and not a bad habit that will be hard to quit," said Ivan Drury, Edmunds.com's pricing and industry analysis supervisor.
Indeed, Honda's incentives remain well below the Big 7 automakers' average spending, which was $2,654 per vehicle in April. Honda also remains among the lowest in the industry and the absolute lowest among the Big 7, although Hyundai has lowered its incentives to nearly matching Honda's higher levels.
Investment Pays Off in Sales
Higher incentive spending paid off for Honda in April sales. Honda was the only Asian automaker to report both year-over-year sales increase as well as a March-to-April (2010) sales increase, according to Edmunds.com's analysis of April sales. In fact, Honda's April sales were the brand's highest since the Cash for Clunkers month of August 2009.
In particular, the Honda Accord, which was heavily laden with lease incentives, proved the best-selling midsize car in April, surpassing the Toyota Camry, which typically holds that spot, by a wide margin.
The margin for Accord versus Camry typically has Camry beating Accord by 25 percent, based on Edmunds.com's analysis of Accord-Camry sales between 2005 and April 2010. Of those 63 months, Camry has beaten Accord in 58 months.
On the downside, Honda buyers appear to be no different than domestic vehicle buyers. Once willing to pay a premium for the brand, Honda buyers are becoming increasingly price sensitive and attuned to the deal as much as the product, suggesting Honda may have created an addiction that will be challenging to break and could take a toll on Honda's image and, worse, profitability. - Michelle Krebs, Senior Analyst and Editor at Large
Edmunds.com Pricing and Industry Analysis Supervisor Ivan Drury provided analysis for this post.
Photo by American Honda
2010 Honda Accord