Last year automakers spent $1.2 billion less on incentives than they did in 2004, according to a recent report by Edmunds.com, an online resource for automotive information. Analysts said the decline is due to lower-priced cars resulting in less incentive spending by automakers.
“This is a new strategy used by domestic manufacturers, and I see them continuing to cut prices in 2006 in order to be more competitive in the marketplace,” said Jesse Toprak, executive director industry analysis at Edmunds.com.
Yesterday, GM announced that it will cut prices on every Chevrolet, Buick and GMC models, as well as most Pontiac cars and trucks, representing about 90% of its volume. The new pricing takes effect Jan. 11. Under the new structure, the manufacturer’s suggested retail price will have dropped by as much as $2,500. “This is a big step for us and arguably the biggest price repositioning in our history,” said Mark LeNeve, GM VP-North America Vehicle Sales, Service and Marketing, in a statement. News reports said that GM had no plans to end its incentives program.
The industry’s incentive spending is estimated to have totaled $42.6 billion in 2005. For the month of December, spending was down 4%, knocking off $102 and giving shoppers an average $2,410 in incentives.
“The downward trend may be sustainable if the investment continues to be targeted for effective use—, of course, if the 2006 and 2007 model year vehicles appeal to consumers,” said Dr. Jane Liu, VP-data analysis for Edmunds.com, in a statement.
Manufacturers and dealerships are looking at new and creative ways to offer incentives apart from cash inducements.
For instance, Auburn Hills, Mi-based DaimlerChrysler Corp.’s “Miles of Freedom Plan” offers car buyers the opportunity to select incentives that include two years worth of gas, a five-year/60,000 mile full mechanical warranty and a two-year/24,000 mile scheduled maintenance or cash bonuses.
While manufacturers on a whole have tightened incentives offerings, in December they still tried to figure out ways to unzip their purses.
According to Edmunds.com, comparing all brands, Scion and Porsche spent the least, $91 and $278 per vehicle sold, respectively. At the other end of the spectrum, Jaguar spent the most, $7,039, followed by Lincoln at $4,969 and GMC at $4,641 per vehicle sold.
Relative to their vehicle prices, Dodge and Jeep spent the most, 14.1% of sticker prices, while Porsche spent the least, 0.4%, followed by Scion at 0.5%.
Among vehicle segments, large SUVs had the highest average incentives, $6,019 per vehicle sold. Sports cars had the highest average incentives per vehicle, $547, while incentives on compact cars averaged just $946 per vehicle. Analysis of incentives expenditures as a percentage of average sticker price for each segment shows large SUVs were the highest, 14.1%, while sports cars were the lowest, 1.8%.
Toprak said that heading into 2006, manufacturers will have to find the balance between keeping prices at a profitable level while still winning the attention of consumers.
At the end of the day, “it’s really about brand image and providing people with vehicles that are equal to or if not better than the quality of their counterparts,” he said.
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