Incentives heat up as carmakers vie for share

By Published on .

Carmakers are increasing cash incentives to buyers as the battle for market share intensifies, a move that a trio of auto experts warn could signal a slowdown in the industry.

Both General Motors Corp. and DaimlerChrysler recently announced new rounds of cash-back deals to consumers, and the average incentive per vehicle has climbed 15% to 30% in the past 12 months, varying by model line, said Matt Stover, a director at Salomon Smith Barney. From February through April 2000, the incentives increased an average of $176 per vehicle to $1,629.

Mr. Stover said the industry is raising incentives to keep production levels high rather than unload excess inventory. He added that this year's strong volume sales are "an artificially driven thing" that should cause concern in the next six months.


In fact, industry sales fell by 1 million units in May from April, making it the worst sales month of 2000, said Bob Schnorbus, director of economic analysis at auto consultancy researcher J.D. Power & Associates. Even so, the industry still sold more vehicles last month than in May 1999, during the industry's best-year ever.

GM sales also slipped in May, he said; the reason may have been because its incentives weren't as aggressive as competitors.

GM's new cash-back carrots started in early June with a major online blitz. Only midsize cars and trucks are included, with a maximum of $750 cash back. But the deals, dubbed Ticket To Ride and found at a new Web site (, are offered on top of other existing incentives.

McCann-Erickson Worldwide's Troy, Mich., office created print ads for the program, now running in national newspapers; McCann also created tags for existing TV commercials across all vehicle brands.

GM dealers aren't required to tell buyers who walk into showrooms about the special Web-based offers, said John Middlebrook, VP-general manager of vehicle brand marketing at GM.

The marketer's online partners, including America Online and Kelley Blue Book's auto research site (, are promoting GM's sale on their sites. AOL is offering weekly prizes in a sweepstakes over six weeks. GM's three-prong promotion has a separate online sweepstakes, $50 gift certificates for test drives and online discount certificates for car purchases. The ads also direct consumers to an 800-number to enter GM's sweepstakes.


Mr. Middlebrook said GM hopes the program brings people into GM showrooms. The deals are on midsize sport-utilities because they are in their final model year before a big revamp, he said.

The margins are higher on midsize SUVs than smaller products, so GM and others can still earn a profit even with incentives, said Jim Mateyka, the VP heading consultancy A.T. Kearney Inc.'s automotive practice. "Cleaning out excess inventory in advance of fresh new models coming is laudable," Mr. Mateyka said. With GM's 18-month regional reorganization, it also offers local deals, and he said regional incentives will be a growing trend.

He added, however, that there are signs the market will slow in the second half of the year.

Due to the rise in interest rates, DaimlerChrysler dropped its low-financing deals in favor of cash-backs on most of its Dodge, Chrysler, Jeep and soon-to-be-discontinued Plymouth brands.

Those brands, enjoying brisk sales a year ago, are now losing market share, said Mr. Schnorbus. Like other carmakers, DaimlerChrysler doesn't want to lose customers now because it's very difficult to win them back, he said.

FCB Worldwide's Southfield, Mich., office created national TV and print ads for the new incentive offers on Chrysler, Jeep and Plymouth. BBDO Worldwide's Troy office did the same for Dodge.

Kia Motor America, meanwhile, this month kicked off its Crazy Cashback Summer Sale. The marketer is offering deals on all three of its models, even the all-new Spectra, which went on sale in late April.


Kia sales are up 14.6% through May this year, to 58,395 units vs. 50,965 a year ago, according to Automotive News. But in May, the marketer's sales rose to 13,709 units, up 7.1% compared to May 1999.

David & Goliath, Los Angeles, created three irreverent TV spots -- one :30 each for the Sephia, the Sportage and Spectra. The same pitchman explains in each how Kia decided the dollar amounts of incentives. In the Sephia spot, "Larry" is spun around in an office chair to cheering onlookers until he gets up and falls on one of several surrounding cushions, each with different dollar figures.

Now that the new incentives are here, industry watchers will have to wait until June sales are tallied to see if consumers respond, said Mr. Schnorbus. "We'll see if [May's] weakness in sales is due to a lack of deals or whether real demand is weakening."

Most Popular
In this article: