Take My Car, Please
By Tim Annett, The Wall Street Journal, July 3, 2007
For dealers
asking car shoppers that timeless question -- what do I have to do to get you
into a new vehicle today? -- it appears that the answer is, pay me to take it
off your hands. And in some cases, not even
that is working.
Clearly,
auto makers would rather not give their product away, but after weak sales
early in the year many have had to adopt splashy tactics such as low- or
even no-interest financing and huge cash rebates in order to lure customers.
According to industry watcher Edmunds.com, the average manufacturer
incentive last month was $2,483 for every vehicle driven off the lot, up
3.85% from May. Detroit's incentives tab was especially fat at $3,200 a
vehicle, but foreign makers -- which have long eschewed lavish financing
deals and cash givebacks -- also loaded on the bells and whistles. Japanese
auto makers offered average incentives of $1,484 a vehicle, up $163 from May
-- and Toyota Motor was right out in front. The company is held up as a
model of everything Detroit should be doing but isn't, but last month it was
offering Big Three-type rebates of up to $3,500 or 60-month, interest-free
financing on its enormous Tundra pickup. And the gambit worked. Sales of the
Tundra more than doubled, helping Toyota to record a 10% jump overall. Sales
of its Prius hybrid were also strong, shooting up 83% to a still relatively
small 17,756 cars.
With the start of the fresh model year looming in the fall, auto makers are
often aggressive with sales incentives through the summer in order to clear
out stale inventory. But Joseph C. Amaturo, an analyst with Buckingham
Research Group, noted that auto makers "are getting ever more aggressive"
with incentives that may help drive their sales volumes but ultimately will
ding up earnings. And no matter how generous some sales deals are they might
not be enough to overcome the economic headwinds that consumers are facing.
Chrysler Group's sales declined 1.4% in June, and the reason for the fall
was familiar -- surging gasoline prices soured prospective buyers on big,
expensive trucks even as car sales were robust. Chrysler derives over 70% of
its revenue from minivans, pickups and SUVs, and it has been crunched by the
backlash against fuel-swilling vehicles. Highlighting the continuing shift,
Nissan Motor watched its sales leap by 24% as the Versa subcompact and other
fuel-friendly models sold well.
Ford Motor, meanwhile, said that its sales declined 8.1% during June, as its
light-truck sales actually advanced 3% while car sales fell 25%. The weaker
car sales stemmed from the company's push to end its reliance on selling
large numbers of cars to rental-car agencies. The company noted amid the
fuel-prices crunch that shoppers were more interested in so-called crossover
SUVs, which pack many SUV-like features into a smaller, more fuel-friendly
package. Ford also dished out generous incentives, including 0% interest for
three months and $2,007 discounts on trucks and SUVs. That appeared to help
stabilize sales of popular trucks such as its F-150 pickups. General Motors
is also taking steps to pare back fleet sales, and its sales dropped 24% as
a result. It too noted that consumers responded to its crossovers, but still
light-truck sales plummeted 23% and car sales fell 19%. GM also said it was
less generous with incentives than its competitors, and that could leave it
ahead of the pack come earnings season. But GM may yet decide to follow its
rivals' lead. Paul Ballew, GM's sales analysis manager, said the company is
"evaluating" its incentives strategy.