By on June 7, 2010

Once again Detroit finds itself atop Edmunds’ True Cost of Incentive ranking of the top seven automakers [via earthtimes], as the domestic OEMs spent about $1.7b (or, about 60 percent) of the $2.8b paid out by the entire industry on incentives last month. Trucks were the most heavily discounted segment, with average incentives running around $4,650, or nearly 13 percent of the average segment sticker price. Saab spent the most by brand, slapping an average of $6,813 on its vehicles, with Lincoln coming in second at $4,987 per vehicle sold. Saab’s incentives equaled 17.1 percent of its average vehicle price, while Chrysler gave away about 12.2 percent of its average vehicle price last month.

Despite giving away more of their vehicles’ value than the foreign competition, Detroit has some surprisingly good news on the resale value front. Well, Ford and GM, anyway, and really, the resale news couldn’t have been much worse. According to Automotive News [sub]:

Automotive Lease Guide projects that 2010 vehicles from continuing GM brands and 2010 Ford brand cars will retain more than 40 percent of their sticker prices after 36 months. Five years ago, the residual forecasts for those brands’ cars except Cadillac were under 40 percent.

So, considering that Toyota and Honda enjoy about 51 and 54 percent of their original value after 36 months respectively, that’s not exactly break-out-the-champagne news… but it could have been worse. It could have been Chrysler:

Chrysler brand 2010 vehicles, in aggregate, have the industry’s lowest projected residual among continuing brands at 39.4 percent after 36 months, 2.1 percentage points lower than its 2005 projection. But the aggregate residual value for Chrysler Group’s Dodge brand is up a dramatic 8.2 percentage points to 41.8 percent. This does not include Ram brand trucks.

Ay Caramba! Needless to say, both Ford and GM’s resale value improvement (and Chrysler’s lack thereof) is largely attributed to new product. According to ALG’s chief economist:

All new models always have a price bump. The average is a 7 or 8 percentage-point bump for an all-new model compared with the old one

Lower inventories aren’t hurting either, and Edmunds is projecting that late-summer incentives won’t reach their typically fire-sale-like levels because automakers simply don’t have the inventories to shift. But as Detroit makes a slow comeback on resale, other firms are charging ahead. And until incentive discipline on the ground matches the tough talk of sales and marketing execs, these minor gains based on product cadence won’t be enough to keep up with the competition. After all, the three-year resale on a Chevy car is only .10 percent better than a Kia. The work is not over.

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15 Comments on “Detroit Tops May Incentives, Residuals Rise Regardless...”

  • avatar

    Until Chrysler Brand can shed the public’s perception of the Sebring’s undesirability, and get some refreshed product to market, their residual values will remain low. I will be most curious to see how they fare in a year or two when they’ve had a chance to sell better product and integrate some of Lancia’s models into the line-up.

  • avatar

    Predictions of future value have gotten many people into trouble since 2005. Have we learned nothing? Future value is of no consequence. Unless, of course, you love your car so much you want to sell it!

    And, where’s that Ford salesman that’s continually crowing about his company’s greatly-decreased incentives making them king of the hill?

    • 0 avatar

      As the chart shows Ford’s incentives are the lowest amongst the D3, and are 15.8% lower than a year ago, compared to an industry average drop of 11.5%. In fact Ford’s biggest rivals, GM and Toyota, both raised incentives compared to a year ago.

      Also, that 3,042 number is larger than most individual Ford rebates. Keep in mind that volume sellers like the Fusion and Escape have only $2000 worth of rebate at the moment. The numbers are skewed by a large number of truck and commercial fleet sales, which will always make it look like the the incentives are higher than they actually are. There are good reasons to price a truck higher and then offer bigger incentives to offset the difference, most have to do with leaving headroom to finance upfits while keeping loan to value reasonable. Ford (and the other Detroit automakers) do this conclously, but it does add to their overall incentive numbers on charts like this.

  • avatar

    Nice to see TTAC looking at incentives in more than 1 dimension for once, but you are still missing average Transaction price and Average profit when looking at the whole picture.

    For instance, if the average transaction price on your vehicles has gone up $3500 since last year (like GM’s has), it is no surprise that incentives have also increased or that a profit is now being made on those vehicles.

  • avatar

    I think it would be to break out the cost of the incentives vs the cost of the vehicle. Trucks typically cost more and the incentives are usually higher. It would be interesting to see the incentives as a percentage of the transaction as opposed to a flat number per sale.

  • avatar
    John Horner

    Trucks start out with the highest profit margins and are thus more easily discounted, especially the higher trim versions.

    Ford’s projected resale values for its cars is amazing. Who would have expected a Ford to hold more of its value than a Mercedes?

  • avatar

    Steven02: +1 on that idea.

    Further, there’s a lot of places where getting info on revenue would be at least as interesting as unit sales and probably more. Take Toyota’s May 2010, for example… Sales of many Toyota models were lackluster and I think the really inexpensive stuff (Yaris) was down but, if I recall correctly, there were solid gains in Lexus. That might represent, overall, a nicely improved Gross Revenue figure and an improved Gross Profit figure. Ditto GM… Didn’t Buick sales improve noticeably? I’d presume that a Buick sells for more than a Chevy.

    Incentives by market segment would be helpful. I haven’t looked at the figures, lately, but if GM is still truck-heavy, givebacks of $3700 on $32K vehicles aren’t as painful as givebacks of $3700 on $22K vehicles.

    And the picture isn’t complete without fleets, of course.

  • avatar

    There is no way Suzuki can have a 46.7% resale value after 3 years.

    • 0 avatar

      They do have a great warranty and a fairly high quality product now that the GMDAT products are being phased out. I’d say it’s probably pretty accurate, no? In comparison to the other brands, it seems right at home.

      Would you think higher or lower?

    • 0 avatar

      gslippy –

      I was thinking the same thing. Suzuki’s don’t have that kind of residual, at least in my experience with trade-ins. I’ve taken in Forenzas on trade that were only 1 year old with under 10,000 miles that had values of around 33% their original. Granted, Suzuki probably has products that do better, and I haven’t seen a Kizashi come in yet, but XL-7s and Grand Vitara’s don’t fair incredibly well either.

    • 0 avatar

      Nullo. That makes sense. In 2005, Suzuki cars had around a 33 – 36% residual after 3 years. I think they are projecting that 2010 cars will yield 46%+ in 2013.

  • avatar

    The trends in the incentives (2010 vs. 2009)are interesting:

    -Hyundai has slashed theirs, but Chrysler’s are down considerably too.
    -Toyota’s have increased significantly, while GM’s is virtually flat.

    Plus, I wonder why Mazda has the highest projected residual value?

    • 0 avatar

      The Mazda resale value question is beyond me. I own a 2004 Mazda 6. Nothing has shown me that it would be that high or low, I would say it was about average, but some people love their Mazdas I guess.

    • 0 avatar

      jpcavanaugh: I’ve heard that resale is very correlated with % going to rental, and that makes some sense, so a combination of low incentives/discounting (I think they’ve only go APR deals out now and those have better resale impact than rebates) and low rental fleet = good resale.

  • avatar

    Interesting that Chrysler had such a good month with incentives only $500 (or about 20%) over industry average in incentives. This is not much over Ford’s position. GM is about $1100 (or over 40%) above the industry’s incentive average. As stale as Chrysler’s current lineup is, and as fresh as GM’s is, I would be a bit concerned if I were Ed Whitacre.

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