Big Three Automakers Lowered Incentives but Asian Brands Raised Them in March

DETROIT April 5, 2005; Dee-Ann Durbin writing for the AP reported that the traditional Big Three automakers eased off incentive spending in March, counting on new vehicles to lure customers to dealerships. But that likely will change in the coming months, especially if Asian automakers continue to boost incentives and sales, analysts say.

Overall, incentive spending was down 3.7 percent in March, according to Autodata Corp. General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler Group lowered spending by a combined 5.8 percent, while Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. increased incentives by 12.4 percent.

GM had the highest average outlay per vehicle at $4,181, while Honda had the lowest at $1,013, Autodata reported. The industry average was $2,916 per vehicle, down from $3,029 in March 2004.

Analysts said new products helped drive down incentives in March. Ford's Mustang and Five Hundred sedan, Chrysler's 300 sedan and Chevrolet's Cobalt all helped the Big Three reduce incentive spending on cars by 23.8 percent compared to last March, Autodata said.

But John Casesa of Merrill Lynch noted in a research report that business at GM and Ford is faltering in part because of the incentive pullback. U.S. sales for both companies are down about 4 percent so far this year, and March sales fell 1.3 percent at GM and 5 percent at Ford.

"As GM and Ford's March sales illustrate, manufacturers can't pull away from the deal without hurting sales," Casesa said. "Only Chrysler has been able to pull away from the deal as it basks in the success of the 300 sedan and strong sales of its (Town & Country) minivan."

Chris Ceraso, an analyst for Credit Suisse First Boston, predicted in a research note the Big Three will likely increase incentives each month through July as the end of the model year approaches.

GM appeared to start the trend Tuesday when it said it will give away 1,000 vehicles and $1,000 cash bonuses toward the purchase or lease of new vehicles as part of a promotion in April and May. In March, it offered consumers up to $1,500 for vehicles that had been on dealer lots for at least 125 days.

"With GM taking a more aggressive stance on incentives in March we expect that Ford and Chrysler will have to follow, thus marking an end to the period of experimenting with lower incentives," Ceraso said.

Much of the increase in incentive spending in March was seen in the hotly contested truck market. Toyota's incentives on sport utility vehicles and trucks more than doubled from last March to an average of $1,364. Nissan increased incentives by 30.5 percent to $1,896 per truck and enjoyed a corresponding jump in demand, including a 42 percent increase in sales of its Titan full-size pickup.

The Big Three boosted incentives on trucks just 4.4 percent but far outpaced their Asian rivals with an average incentive of $3,903 per truck.