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More Than Meets the Eye

August 2007, F&I and Showroom - Feature

by Gregory Arroyo - Also by this author

So, the editor in the next office gets in today (June 29) and tells me about the “Transformers” movie premiere and after party he attended the night before. He always gets to do cool things like that, but does he ever invite me? He did like the movie. If anything, he said, it was one heck of a commercial for General Motors, especially its new Camaro.

What a way to spend a Thursday night, huh? Go hobnob with Hollywood while getting a first glimpse of one of the biggest movies of the summer. All I got to do was enjoy another one of the wife’s pasta creations. Alright, I better get serious here before Coach pulls the plug on these editorials.

I bring up the movie because all the hoopla surrounding it has marked how the summer incentive push has hit full stride. The movie was also used as an intro to a radio interview I heard on the way into the office. It centered on how zero-percent financing has become so commonplace in the automotive retail industry. No disagreements there. The interviewee was a reporter from another automotive news organization (I hope that’s obvious enough).

The interviewer introduced his question by talking about how even Toyota had succumbed to the incentive pressure by launching a new program for its Tundra on June 18. The reporter agreed that automakers are responding to increased competition in a market where consumers aren’t showing much pent-up demand for vehicles. He added, however, that consumers seem “immune” to zero-percent financing, which is where I took issue.

If you want my take, it’s not that consumers are immune … it’s that they’ve come to expect it. It’s as if they feel entitled to those incentives. It’s not that I thought his assessment was wrong, just a tad understated. As for
Toyota succumbing to the pressure with its Tundra incentive program, I’m not too sure. Remember, the Toyota Tundra is competing for conquest sales. In my view, the incentive program was the automaker’s way of leveling the playing field while going head-to-head with the domestic stalwarts in that vehicle segment.

So, am I way off base?

Almost a week after Toyota released its Tundra incentive, GM rolled out its own incentive program on select Chevrolet, Buick, Pontiac and GMC vehicles. Two days later, Ford rolled out its zero-percent financing program on 2007 Ford and Mercury models. Both programs were expected to end on July 9, but that was before June sales results were released. GM,which saw a 24-percent drop in sales, responded with new rebates and concessional financing to match Toyota. Ford also responded by extending discounts across its 2007 model-year lineup.

Reports on incentive spending by automakers have varied. Edmunds.com estimated that the average automotive manufacturer incentive was $2,483 per vehicle in June 2007, up $92, or 3.85 percent, from May 2007, and down $132, or 5.05 percent, from June 2006. Leading into June, analysts said GM and Ford held incentive spending largely flat this year, which is what made CNW’s reports for April and May even more eye-opening.

Looking at the “Big 6” automakers, CNW said April saw “everything from demonstration-vehicle incentives to looser credit criteria to lower interest loans on the table.” The Bandon,Ore.-based research firm said the average incentive per vehicle sold hit $3,937 in April, 8 percent higher than the previous month and 31 percent higher than a year ago. The month also saw lease subsidies reach their highest level since 1998.

May incentive levels were a different story, especially with a proportion of buyers not getting the zero-percent financing offers or selecting vehicles not covered by major spiffs. Although incentive levels did fall from April to May, the results were still higher than last May.

CNW said it expects automakers to be a bit more choosy when it comes to incentives, as recent data showed that even incentives aren’t having the big impact they once had. The research firm pointed to Toyota as an example of how automakers will reign in the overall incentive load, as the nameplate didn’t offer its entire Tundra incentives package to everyone.

I guess I agree. However, with consumer confidence falling in June amid concerns about jobs, I’m not sure how choosy the industry can be at this point. Add the housing slump to that list of concerns, with everything pointing toward lower spending during the critical fall shopping season.

According to the New York-based Conference Board, the Consumer Confidence Index fell almost 5 points from May to June, reaching its lowest level since August 2006. The Labor Department also reported that unemployment claims rose to their highest level since mid-April. However, the bump didn’t deter analysts from maintaining their view that the labor market remains healthy. It was enough, however, to impact consumer confidence.

Analysts had predicted a 3.4-percent increase in sales for the month of June, but Autodata Corp. reported that the industry actually realized a 3-percent decrease. And before June results were tabulated, Edmunds.com said annual sales were tracking at 16.4 million. Well, I guess in this situation there’s more than meets the eye.

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