• by Karl Greenberg , July 7, 2008

Back in 2001, GM launched its "Let's Keep America Rolling" program of 0% financing and cash incentives; soon the other Detroit automakers began what turned into a multi-year cavalcade of hood cash. Zero percent financing became, for a while, a nominal vehicle selling point, like moon roofs and navigation.

 

 

Is the incentive engine about to get supercharged again? After all, last week General Motors' head of marketing, Mark LaNeve, said in a conference call that the 72-hour, 0% incentive program the company used to boost sales volume last month would be sustained through the July Fourth holiday.

Chrysler is also extending through July its "Let's Refuel America" program, offering $2.99 per gallon gasoline in addition to cash incentives. Toyota's incentive spend is also up. According to Santa Monica, Calif.-based auto research and commerce firm Edmunds.com, the company's incentive spend went from $988 in June, 2007 to $1,186 last month. GM spent an average of $3,454 per vehicle last month, from $2,891 last year.

Still, Edmunds.com reports, overall incentive spend was actually down last month versus the month last year, though by only 0.9%, or $22. Michelle Krebs, senior editor at the firm, points out that the market fundamentals are also different now versus 2001, and that an incentive war is not in the offing.

"It's not that way now," she says. "To me, these [GM and Chrysler deals] seem like natural extensions: this is traditionally a big sale weekend, so it's a good opportunity. It made a lot of sense." Ford and Chrysler actually dropped their overall incentive spend last month, from $3,131to $2,745 and $3,822 to $3,427, respectively.

A more telling way to slice the incentive numbers is by vehicle segment. Edmunds.com says cash incentives on large SUVs averaged over $5,000 last month, while compact car incentives across the industry averaged $1,168. Chrysler's sales also tell the story. The Auburn Hills, Mich.-based automaker, with a portfolio heavy with trucks and light on fuel sippers posted a 36% decrease in sales versus the same period last year.

The smallest drop in sales was minus 28% for the Dodge Charger car. Krebs says that Chrysler's $2.99 per gallon deal will only go so far. "They are heavily weighted in SUVs and trucks, and don't have anything sub-compact to offset those losses. The smallest thing they have is Dodge Caliber, and they don't have competitive mid-sized cars."

Indeed, the company's Sebring and Avenger mid-sized cars, which vie against Chevy Malibu, Honda Accord, Toyota Camry and the like, also fared poorly last month. Sales of the Sebring and relatively new Avenger were off by 50% each. And sales of Dodge Ram pickup were off 48%. "They have to do something. Our data show 'Let's Refuel America' isn't helping much; it may help to close deals for vehicles that have the most take rates already," says Krebs.

Toyota is having the same problem with Tundra, whose sales plummeted 47%, and which the company is supporting with much higher incentives. "Which aren't helping them much, either," Krebs says. Even the luxury brands, hitherto immune to things like gasoline prices, are feeling the hurt. Lexus, which hasn't had new products to boast of lately, saw a 16.6% sales decline last month, and the month before. Mercedes, which has been posting record sales for several months, saw a drop last month. Lexus was off over 16%. Sales of BMW vehicles slid 11%.

Early in the millennium the issue was supply-side: even though the industry was delivering a record number of vehicles per year, near 17 million, with the majority being trucks and big SUVs (remember when $30 a barrel was a lot for crude oil?) the industry was choked with inventory and burdened by production overcapacity. It still is, but now the issue is obviously demand side: oil hit $146 a barrel last week; while companies like GM are reducing capacity, consumers aren't buying big vehicles.

Ironically, while trucks are gathering moss, cars like Prius and Civic are hard to impossible to find. "There's a six-month wait for Prius," says Krebs, who notes that Toyota had that kind of wait list when it launched the car in late 2003.