That could mean a squeeze on profits is just ahead.
Usually, incentives for model-year clearouts come in late summer. But they came in June this year. Flat demand and a healthy supply of off-lease vehicles spurred a record 28% spike in cash incentives for the month over the year-earlier period, or $3,708 (highest for a month in the decade) vs. $2,896 in average incentives per car, according to CNW Marketing/Research.
july slightly lower
July's cash incentives were only slightly lower as several carmakers are trying to clear out both 1997 and 1996 models to make way for '98s.
Incentives will increase if '97 models and a slew of slightly used, off-lease vehicles don't move in time for soon-arriving 1998 models. The '98 sticker prices are not much higher than the '97s. That fact, combined with higher incentives in today's market of high production and flat demand, will erode the marketers' bottom lines.
Record incentives come at a time when the auto industry has been emphasizing branding and brand advertising.
"You have to advertise the deals, but it's no longer product advertising, it's deal advertising," says Suzanne Kinsler, managing associate of Cooper & Lybrand's Autofacts.
A key strategy of General Motors Corp.'s 1995 brand management reorganization was to optimize sticker prices by building equity in each vehicle with consistent, annual ad programs. GM was trying to move away from incentive programs that spiked sales, but strikes slowed several key new-product launches this year.
GM got back into the inducement game this year to buttress a slipping market share-to a 71-year low of 28.4% (in June).
Detroit's Big 3 alone pumped up cash incentives to consumers an average 40% this June compared with a year ago, Autofacts reports. But even the Asian marques outspent the domestics by a collective average of 25%, a quirk engineered by Nissan Motor Corp.
Nissan led all major marketers (those above 4% market share for light vehicles) with an incentive package per car of $2,167 in June, up from $631 per vehicle since January, according to industry consultancy CNW. Nissan's heavy incentive program was tied to clearing out '97 Altimas for the redesigned '98s and to push more cars into lease programs. Nissan's unit sales in '96 dropped 3.1%.
Both Toyota Motor Sales USA and American Honda Motor Co. gained market share last year as they pushed higher incentives. Unlike Nissan, those incentives have slipped this year. All three have recorded stronger sales for first half '97 compared with a year ago.
toyota humming along
Even though Toyota has higher sticker prices than comparable domestic models, "it keeps humming along," says Art Spinella, VP of CNW. "Ford can't sell Taurus. It's not a slouch vehicle, but they have to incentivize it."
A big part of Taurus' problem is the Camry. Toyota's newly designed Camry, launched last fall with an estimated $50 million integrated ad push, is overtaking Taurus as the best-selling car in the U.S.
Taurus sales have slipped 7.7% through July '97 to 207,426, while Camry sales have risen 14% to 239,041 in the same period. Ford's current $1,500 rebate on the Taurus, upped from $1,000 in July, is due to run through October.
No incentives are offered on the Camry.
Ford needs to stimulate sales of the Taurus and other Ford car models because prices of the '97s in general are 1.1% higher than the incoming '98s. GM's average price by contrast rose 1.3%.
With the moderate plateau on sales and rising production in the auto industry,