According to a Reuters report, the rebates, interest-free loans and other incentives that US car makers have used to keep sales robust for much of the past year may be losing their allure, just as the industry braces for a slowdown.
Citing analysts’ reports on Thursday, Reuters said incentives in February averaged $US2,225 per new vehicle, a 10% increase over January and a 33% increase over the same month a year ago. But the seasonally adjusted rate of sales fell to an annualised rate of 15.4 million, down from 16.2 million a month earlier and 16.6 million in February 2001.
The data are the first evidence of a trend that some industry executives have been warning about for several weeks, Reuters said, noting that Ford’s head of revenue management said in January that higher incentives were producing diminishing returns. Reuters added that General Motors chief executive Rick Wagoner echoed that theme this week, saying GM was searching for the “right kind of consumer hook” to boost sales.
“Based on February sales results, we are concerned that consumers’ responsiveness to incentives is beginning to dull,” Merrill Lynch analyst John Casesa said in a research note reported by Reuters.
Reuters said that Detroit’s Big Three continue to have the highest incentives in the industry, averaging about $2,900 per vehicle. Yet, the news agency noted, despite offering more than $3,000 per vehicle in incentives – a 36% increase over February 2001 – GM saw its sales fall 19% while Ford and Chrysler also raised their incentives by a similar amount, yet Ford reported flat sales and Chrysler posted a 4% decrease.
Reuters said that GM and Ford both announced they would cut production in the second quarter from year-ago levels due to larger-than-normal inventories of unsold vehicles and consumer concern about war in Iraq.
“The big change in auto company behaviour, in our view, is that the Big Three appear to be opting for production cuts rather than for a further escalation in incentives,” J.P. Morgan analyst David Bradley said in a research note reported by Reuters.
Reuters said foreign car makers also raised their incentives in February, but to a lesser degree. Major Japanese automakers averaged less than $800 per vehicle, while European automakers averaged about $1,600 per vehicle.