The vicious incentive discounting battle continues in the auto industry. Once again, General Motors and Ford Motor are relying on incentives to boost lackluster vehicle sales and to regain ground lost to Asian rivals.
GM increased rebates on sports utility vehicles to $5,000 and to $4,000 for most 2004 cars, while Ford raised its offer by $1,000 on some SUVs, including the Explorer, the companies announced in statements.
"Consumers have more reasons than ever to choose a great new GM vehicle," John Smith, group vice president of GM North America Vehicle Sales, said in a statement. True. The rebates are good news for the consumers, yet another blow to the car manufacturers.
The Big Three — Ford, GM and Chrysler, a unit of DaimlerChrysler —- have yet to find a way to wean the American shopper off of incentives and to take advantage of an economy that's on the mend, recovering in consumer confidence and slightly higher interest rates. Consumers are accustomed to the significant deals and don't seem willing to pay the extra money for their U.S.A.-made car. Data backs this point.
In June, light vehicle sales fell to their lowest point in nearly six years. Incentives for the auto industry declined 1.1 percent in June to $3,667 from $3,703 in May, according a CIBC World Markets analyst report, citing CNW Marketing Research. So today's news on the incentives isn't a surprise.
Even so, Ford, GM and Chrysler executives must explain to soon-to-be inquiring investors the reasons behind disappointing earnings results.
The pricing battle began after Sept. 11, 2001. U.S. carmakers resorted to offering sizable cash rebates, interest-free financing and slashing in some cases, the sticker price of the vehicles to lure buyers amid a sluggish economy. Sales rose as people rushed to their neighborhood dealership; however, the deals squeezed profit margins at the automakers.
And to add to their woes, Asian competitors like Nissan and Toyota were enjoying high market share gains because the companies offered trendier, more stylish cars packed with features such as compact disc players for about the same price or less than their U.S. counterparts.
So what's the solution? How do automakers sell more cars without essentially greasing the palms of consumers with incentives? What are your thoughts on this issue? Can this cycle be broken? For now, you might as well visit your local Ford or GM dealer and take advantage.