By on January 4, 2011

As we wade through our year-end sales number reports, one of the important metrics that we’ll be looking at are incentive spending rates. Detroit continues to dominate both Edmunds’ True Cost of Incentives index (above) and TrueCar’s incentive forecast (after the jump), with little serious competition for their supremacy in this profit-sapping and brand equity-squandering category. Still, the foreign firms are increasing their incentives while Detroit has generally scaled back over the last year, so the incentive race is slowly getting tighter…

TrueCar’s incentive forecast (above) shows that Nissan in particular is approaching Detroit-like levels of cash on the hood, although discrepancies with the Edmunds numbers, particularly in regards to Nissan (the most-incentivized import) and Ford (the least-incentivized domestic), do muddy the picture a bit. And since only Emdunds offers year-end incentive numbers (below), that’s all we have to go on for a picture of the industry’s incentive activity in 2010. And those numbers definitely do show a narrowing of the gap between foreign and domestic automakers, with Detroit cutting back on incentives and the foreign firms increasing their spends. Still, until the Detroit firms breaks free of the $3k-per-vehicle level, it will be tough to heap too much praise on their restraint… and until the imports top $3k-per-vehicle, it won’t be much of a horse race.

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27 Comments on “December Incentives Report: Detroit Dominates, But Imports Are Catching Up...”


  • avatar
    HoldenSSVSE

    I believe in looking at long term trends, the two that jump out at me and make me go, “yikes,” is Honda’s incentives up 66% and Ford’s incentives up 11% for the year.  I’m very surprised (and now have to eat crow in a different discussion) that Ford incentives grew.  For Honda I don’t know how much of it is weak product (CR-Z, Crosstour) and how much of this is, “me too,” having to respond to Toyota.  I knew about Toyota holding at a 37% increase.

    The interesting thing for Toyota and Honda is how will they get off the treadmill; ask the Detriot big 2 and Italian 1 how hard it is.

    • 0 avatar
      SherbornSean

      I think the issue with Honda is where they are in their product development cycle. Their two best sellers, the Civic and Accord, will both be replaced in 2011. So Honda needed to subsidize a lot of $199 leases to keep the iron moving in 2010. I expect them to revert to lower subsidies once the new product is on line.

      Interestingly, there is a NYT article today on how minivans are hot again. Apparently, dealers in the Northeast can’t keep Odysseys in stock.

    • 0 avatar
      NulloModo

      Ford increased the incentives on the entire Mercury line to blow out inventory. The move worked, as few dealershup

  • avatar
    SVX pearlie

    GM cutting their incentive spend by 17% and still having a good sales bump is excellent for them.

  • avatar
    jmo

    I’m curious as to how the presence of incentives impacts used car prices.  We had a discussion the other day and Sajeev was surprised that you could get a new Civic Si for 19,500, when a two year old one might go for 17k*.  Everyone here always extols the value of “slight used” Japanese cars, but I just can’t find how it’s a deal.  It seems used prices don’t adjust to the presence of new car incentives as much as I would expect.
     
    *Assuming a new Civic would last 20 years and 240,000 miles a 2 year old Civic has consumed 10% of it’s useful life or $1,950.  Seems like buying a 2 year old model saves you about $500 –  hardly seems worth the risk of buying something that someone else broke in.

    • 0 avatar
      CJinSD

      http://www.truecar.com/Honda/Civic_Coupe/2011/best-price-report-5E055A0C.html?zipcode=92109

      Bottom price for an Si sedan is a couple hundred more. Where can you get a new Si for $19,500? I bought one for about that much on paper in 2007, but the reality is that I paid over $20K when you add on the ‘mandatory’ dealer documentation fee, mudguards, wheel locks and prep fees. I negotiated an ‘on the road’ price of $21,300 including plates, sales tax, and anything I couldn’t refuse to pay for. One other dealer came in at $21,657 and every other dealer(I put my sale out to bid by every Honda dealer in Virginia) was at least two grand north of competitive. Super low prices in adds don’t mean a damned thing when you find out that there are mandatory fees and accessories totaling over a grand. Also, I’m a cash customer. I don’t trade in and I don’t finance. Most dealerships can sell you a car that you think you’re getting for $3K off while you really pay $3K over MSRP by the time they’re done shafting you on your trade in and in the business office. I suspect that a used car purchase of a one-responsible-owner vehicle from the owner can make a lot of sense. Most people will probably end up AT LEAST doubling the savings derived from comparing ‘sale prices.’

    • 0 avatar
      jj99

      My brother is looking for a new Toyota or Honda.  We are stunned at how much higher prices are than 1 year ago.  For example, last year, it was easy to get a base Camry with an automatic for 17000 before taxes and plates.  Now, a 2011 is closer to 19000. 

      Part of this big jump might be Toyota not wanting to sell as many vehicles.  Why?  Perhaps to get NHTSA off their case?  Just speculation.

    • 0 avatar
      jmo

      Also, I’m a cash customer
      You’re a cash customer when they are offering 0.9% financing?

    • 0 avatar
      CJinSD

      absolutely jmo. If you don’t take a special interest rate offer, you can hammer much harder on the price. I sold cars in college. The dealership was proud of the fact that they always made money in the finance office. They thrive on misdirection. As soon as they can get someone excited about a sale price, OR an interest rate, OR a rebate, OR the high residual value of your same brand trade in, OR the free powerwheels toy for your kids, you are sodomized. Our payments and interest rates never reconciled, at least not for the .4% of the population that understands the time value of money.

    • 0 avatar
      jmo

      CJ.

      our payments and interest rates never reconciled, at least not for the .4% of the population that understands the time value of money.

      So, none of your advice applies to people who are good at math?

      Sometimes you can get a better deal on a new car, sometimes the deals are better on used cars. You need to run the numbers and see what is better. Only a fool doesn’t bother to run the numbers.

    • 0 avatar
      CJinSD

      People who are good at math don’t need my advice. We already know better than to dealer finance a car. Don’t get me started about going into debt to purchase depreciating assets.

    • 0 avatar
      jmo

      Don’t get me started about going into debt to purchase depreciating assets.

      Well, that would all depend on what other investment opportunities are available.  I don’t think you’re doing anyone any favors with your incorrect and wildly simplistic financial advice.

    • 0 avatar
      CJinSD

      Incorrect advice for who? People who prey on morons don’t like my advice, but I don’t owe a penny and I’m not particularly vulnerable to the economic policies of the hack in the white house. I buy things I can afford, and I can afford what I want. Do I stimulate the economy? Maybe not, but I don’t sink or swim by the decisions of others either. I’m a bit risk averse at the moment, and won’t get involved in speculative investments based on fiat currency inflating stock indices while the value of equities has plummeted against gold. I could buy commodities, but their inflated values are dependent on economic activity outlasting Obama. It is a good time not to be saddled with debt. Even when hyper inflation hits, it isn’t a good assumption that we’ll be flush with devalued currency. Go ahead and lease a car to impress other borrowers though, and pump your ‘savings’ into magic beans.

    • 0 avatar
      jmo

      speculative investments based on fiat currency

      Ever hear the expression – “Tis better to remain silent and be thought a fool, than to speak and remove all doubt.”  Well, you have spoken.

    • 0 avatar
      NulloModo

      Dealer financing isn’t always bad.  Especially in the case of subvented interest rates, the dealer financing can save quite a bit of money.
       
      Granted, if you have absolutely perfect credit, and you are looking at something with big rebates, sometimes you can walk away with a better deal doing your own financing.  But for someone with good, but not perfect credit, who might qualify for around a 4%-5% interest rate loan, taking the 0% and giving up the rebates still saves more over the term of the loan even if it means paying a higher initial price for the car, as the finance charges would have equalled out higher than than the rebates.

    • 0 avatar
      CJinSD

      jmo,

      You’re in for a rude awakening.

      NulloModo,

      Not all cash customers finance through their credit unions. The idea that borrowing money at a low interest rate and spending it on something that depreciates 25% every year is going to be offset by investing in a stock market that has dropped 65% against gold in the past 3 years is pretty silly. jmo could probably benefit from your advice though.

  • avatar
    CJinSD

    If Edmunds’ True Cost numbers are correct, then this story is a non-starter. If TrueCar’s are right, then maybe convergence will happen before the next UAW induced hangover hits the domestic car market. High energy prices this year could tip things back to makes with proven track records of building efficient cars that aren’t penalty boxes no matter what.

  • avatar

    How is discounted financing (0% APR) factored into these cash values?  Some OEM’s focus more on financing than on cash incentives.

  • avatar
    NormSV650

    GM was still selling old Saturn’s, Pontiac’s, Hummer’s, and Saabs to be fair. Yes, very good for GM.

    Toyota and Honda slap cash on the hood last month!

  • avatar
    SkiD666

    When TTAC brings up incentive spending without discussing transaction prices and profit, the overall picture is incomplete.

  • avatar
    Gregg

    It would be interesting to know how much of Ford’s increase was to clear the lots of the remaining Mercury models.  It may have been worth the price vs the storage costs.

  • avatar
    Dimwit

    A closer look might be required than just the average figures. It all comes out by model. $5k on a Flex but >$500 on F150’s makes a large difference. Ford could keep that up indefinitely. It would be interesting to know how broad a range the incentives cover. Just a general interest rebate? Cash on the hood over the complete model range? Yadda, yadda, yadda.

    • 0 avatar
      CJinSD

      The average is determined by the total expenditure on incentives divided by the total number of vehicles sold, not the sum of the prices of each model line’s incentives divided by the number of model lines. I remember when $500 cash back was a big deal, and the average transaction price has less than doubled since then. Ford may be able to keep up $3K a car incentives indefinitely, which is what a P/L statement will reveal. The problem is that incentives tend to erode brand equity.

  • avatar
    Steven02

    Do any of the incentive reports include price of the vehicle in their reports?  The Detroit 3 sell more trucks.  Trucks are more expensive and have bigger incentives.  So do crossovers.  Imports typically sell more cars, which are typically lower priced and have lower incentives (Camry best selling car again, has been for several years now).
     
    If the average price of a truck is 30k, and the average price of a car is 20k, (picking numbers randomly don’t have actual data on it), then D3 having a 3k incentive is just as bad as a 2k incentive from the imports when it comes to incentives.  I know the above example doesn’t include the fact that all auto manufactures sell a mixed fleet of vehicles, but I really do think that incentives should be tracked as a function of MSRP as opposed to a price per unit.

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