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As Sales Slow, Automakers Could be Heading for Incentives War

Good news for consumers could be a disaster for industry’s bottom line.

by on Feb.12, 2014

GM's move to offer more than $7,000 in incentives on its 2014 Silverado has made investors nervous about a possible incentive war.

When General Motors announced it would offer more than $7,000 in discounts on some of its big Silverado pickups the news sent many shoppers rushing to showrooms – but it also sent shivers racing down the spines of automotive investors increasingly worried that slowing sales may trigger the sort of incentive wars that trashed industry profits during the years leading up to the recent recession.

All the ingredients are there for a classic price war, automotive analysts warn. January auto sales took a sharp dip that may have been impacted by more than just the cold weather gripping the nation. In turn, there are now a growing number of vehicles piling up on dealer lots across the country, a situation that may force manufacturers to sharply increase current rebates and other incentives.

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“Rising inventory levels combined with several more waves of bad weather will result in a short-term spike in incentives,” said Eric Lyman, vice president of Editorial and Consulting for ALG, formerly known as the Automotive Leasing Guide. “The danger is that this could be the beginning of an escalating arms race for market share.” (more…)

Is Another Rebate War Brewing?

by on Sep.03, 2009

Even during the Cash-for-Clunkers program, Toyota ramped up incentives; now it's offering 0% financing on models like this 2010 Toyota Corolla.

Even during the Cash-for-Clunkers program, Toyota ramped up incentives; now it's offering 0% financing on models like this 2010 Toyota Corolla.

For a month, at least, things almost seemed to be back to normal around the auto industry, assembly lines humming and dealers racing to write up sales orders.  But now that the Cash-for-Clunkers program has wrapped up, there’s mounting concern, across the auto industry, that August’s momentum could quickly be lost – or that the industry could be forced to launch a new round of costly rebates and other incentives.

“Cash for Clunkers proved Americans would buy a car if they got a good enough deal – and one available for a limited time,” says Stephanie Brinley, an automotive analyst with AutoPacific, Inc. “But the industry is going to have to come up with some pretty big and clever programs to keep from losing the momentum.”

An Incentive to Subscribe: It's Free!

An Incentive to Subscribe: It's Free!

Despite the big payout from the federal government, new research from Autodata Corp. shows the industry handed out an average $2,265 in rebates, subsidized loans and other incentives, last month, an increase of 31% from August 2008.  And there are signs, already, that a big bump may be in the works – notably among Asian makers, like Toyota and Honda, that lag, rather than lead, the rebate wars.


Senate Approves Another $2 bil for Clunkers

Dealers already overloaded by demand.

by on Aug.07, 2009

Dealers will be able to continue take up to 500,000 more trade-ins, now that the Senate has approved another $2 billion for the Cash-for-Clunkers program.

Dealers will be able to continue take up to 500,000 more trade-ins, now that the Senate has approved another $2 billion in Cash-for-Clunkers.

The Senate has approved another $2 billion to replenish the unexpectedly popular Cash-for-Clunkers auto incentive program, which has helped spur strong demand in an otherwise moribund American auto market.

The vote, late Thursday, mirrored action taken by the U.S. House of Representatives, a week ago, and with President Barack Obama’s signature, it means there will be enough money to keep the program, officially known as the Car Allowance Rebate System, going through Labor Day.

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Cash in with a FREE subscription!

“Now more American consumers will have the chance to purchase newer, more fuel-efficient cars and the American economy will continue to get a much-needed boost,” the president said, following the Senate vote.


Hyundai Accelerates Cash for Clunkers Payments by Advancing Cash to Participating Dealers

At the very least it's a public relations, if not a sales coup.

by on Jul.10, 2009

Hyundai Elantra 2009

The Korean-built Hyundai Elantra was the most popular model purchased, at 41% of sales.

Hyundai has stolen a march on competitors by becoming the first automaker to claim that it is honoring the U.S. government’s “Car Allowance Rebate System” better known as the cash for clunkers program.

Cash for clunkers has accounted for 7% of Hyundai sales in its first week, which theoretically started on July 1 even though final guidelines have not been issued, according to spokesman Chris Hosford. The program, which cleared Congress only last month, is designed to stimulate new car sales, which are now caught in a deep slump since last autumn.

“The early response we’re seeing demonstrates the CARS program is working, with inefficient gas guzzlers being traded-in for fuel-efficient Hyundai models,” said John Krafcik, president and CEO, Hyundai Motor America.

No Taxpayer Cash Involved!

No Taxpayer Cash Involved!

“We expect overall sales from this program to grow as consumer awareness increases — it should surpass 10% of our retail sales this month,” Krafcik. That means U.S. taxpayers will subsidize more than 3,000 sales of Korean automobiles.


Toyota Stealing From Big Three Playbook

With sales in freefall, Japanese maker offering Detroit-style sales incentives.

by on May.07, 2009

Storm clouds on the horizon. With even the new Prius off to a slow start, Toyota is rolling out Detroit-style rebates, subsidized leases and other incentives.

Storm clouds on the horizon. With even the new Prius off to a slow start, Toyota is rolling out Detroit-style rebates, subsidized leases and other incentives.

It used to be a point of pride for Japanese makers, Toyota in particular.  In fact, senior Asian executives could barely contain their glee at watching their Big Three Detroit rivals run up billions of dollars in costs on the rebates and other incentives needed to keep the metal moving.  Japan, Inc., on the other hand, happily collected a premium over sticker, especially on its most popular models, like the Toyota Prius hybrid.

Or so went the story line.  The reality was never quite so neat.  The Japanese have long had incentives, especially the smaller, weaker makes.  But the big brands generally kept that news quiet.  As Toyota’s Senior Vice President Don Esmond would acknowledge, “We have to remain competitive,” even if that meant just offering some cash that dealers could kick in to clinch a deal.

No longer.  The current economic downturn has been surprisingly democratic.  With sales currently running at just little more than half the peak levels of early in the decade, there isn’t a brand that hasn’t felt the pinch. Even Subaru and Hyundai, which initially seemed to defy the downturn, were off last month.

And then there’s Toyota.  After defying gravity, seemingly for decades, it has suddenly come crashing back down.  Its sales tumbled 41.1% in April.  While it’s clear that the traditional spring buying season hasn’t shaken off the hoary frost of winter, Toyota’s numbers were down much more than the overall industry’s 34.4% drop for the month.  In fact, Toyota saw a steeper dip than almost anyone other than Mitsubishi, down 55%, and bankrupt Chrysler, off 48%.

Subscribe to TheDetroitBureau.comToyota’s downturn could be seen across the board, with big drops by perennial Top 10 favorites like the Camry and Corolla, as well as the poster child for the environmental movement, the Prius. 

Indeed, the hybrid’s numbers, so far this year, have been running barely a third of where they were during the mid-2008 fuel price run-up, despite the launch of an all-new version of the Prius.

Intent on heading off the steady slide, Toyota has been taking a variety of steps, including unprecedented production cuts, notably at its U.S. operations.  Now, it’s beefing up the rebates and incentives it used to sneer at – and it’s no longer hiding that fact.


U.S. Production for Audi Unlikely Even as Volkswagen Builds a Plant Here

Audi's and Volkswagen's platform strategies are moving in distinctly different directions.

by on Apr.22, 2009


"The industry being redefined." It's also shrinking. Luxury brand sales are off by one-third.

Audi, even though it’s optimistic about its future prospects, hasn’t made any decision yet on whether to build cars at the Volkswagen plant that’s under construction near Chattanooga, Tennessee.

Johan de Nysschen, president of Audi of America, told the Automotive Press Association in Detroit that Audi doesn’t have any plans for using the Chattanooga plant. Audi’s and Volkswagen’s platform strategies are moving in distinctly different directions, making it more difficult to share a plant, he noted.

“We’re not married to a common product with Volkswagen,” he said.

“We haven’t reached any kind of a decision on whether to build cars in (North America),” added de Nysschen. Any final case for a plant in the U.S. would have to consider whether there was enough volume to sustain production and whether it was possible to line up a cost-efficient supply base.

Despite some modest cuts, Audi isn’t about to abandon motorsports, particularly since the company has been well served in recent years by its strong showing at the 24 Hours of LeMans and at the endurance races at Sebring.

This already a tough year since the industry is in the midst of a historic transition, “The industry being redefined,” he said. It’s also shrinking, he said, and more contraction lies ahead.

The luxury segment has already shrunk by one third this year, de Nysschen said. (more…)

Ford Solicits Scarce Buyers with Advantage Plan

Payments are covered for 12 months if purchaser loses job.

by on Mar.31, 2009

Ford marketing flatters Hyundai by emulating incentives.

Ford marketing copies Hyundai incentives.

If imitation is the sincerest form of flattery, then Hyundai Motor America marketing executives should be blushing bright red as General Motors Corporation and Ford Motor Company followed it today with buyer payment protection plans that emulate its breakthrough Hyundai Assurance Program that has boosted sales by at least 10% in Hyundai’s estimation.

In the face of frightening U.S. sales declines in February that made it the lowest February sales on record going back to 1967, automakers are desperately trying to reassure customers that now is the time to buy with a variety of incentive packages. (February year-over-year comparisons ranged from -53% at GM, -48% Ford, -44% Chrysler, and -35 to -37% at Toyota, Honda and Nissan.)  Auto sales in the first two weeks of March were down 40% compared to a year ago, and running at a dismal annual rate of  9.2 million units, according to J. D. Power and Associates.

Automakers are increasingly using as an inducement guaranteed-payment of car loans, if the buyer loses his or her job — certainly a very real threat at domestic car companies, if not for workers in the slumping economy as a whole. 

controversial bill has also been introduced in the U.S. House of representatives (H.R. 1550, or the CARS Act) could help kick-start the American automotive market by providing cash incentives of up to $5,000 for those who trade in a vehicle at least eight years old for a limited selection of  fuel-efficient products produced in North America.  The legislation, as initially proposed, would offer the biggest tax credits for U.S.-made vehicles, though products made in the NAFTA countries, Canada and Mexico, would also qualify.  (more…)

GM Launching Total Confidence Program

Automaker hopes to ease concerns of reluctant buyers.

by on Mar.31, 2009

"GM Total Confidence," a 24-month customer protection package that will make up to nine payments for up to $500 per month for new car buyers who may become unemployed.

"GM Total Confidence," a 24-month customer protection package that will make up to nine payments for up to $500 per month for new car buyers who may become unemployed.

Hoping to assure reluctant motorists staying out of the new car market – or simply avoiding General Motors vehicles – GM has launched its expansive Total Confidence Program which, among other things, will protect buyers who unexpectedly lose their jobs.

The new program, announced during the first news conference by new GM CEO Fritz Henderson, offers to cover up to $4,500 in payments should a buyer lose his or her job, and even come up with some cash if a potential customer is “upside-down,” owing more money on their old vehicle than it would bring as a trade-in.

“This is about providing a full range of protection for our customers,” said Henderson, insisting the Total Confidence Program is more expansive than competitive measures launched by competitors, such as the Hyundai Assurance Program, which allows a buyer to return a vehicle, without penalty, if they lose their job.

The TCP program is GM’s latest response to the overall slide in U.S. new car sales and to the specific downturn it has faced as buyers grow wary about dealing with a manufacturer that could soon go bankrupt. On Monday, Pres. Barack Obama warned that a Chapter 11 filing was a very real possibility, as he rejected GM’s bid for a second round of emergency government loans. (more…)