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Four Ways to Manage Incentives

November 2007, F&I and Showroom - Feature

by Troy Ontko - Also by this author

Reports on incentive spending have varied throughout 2007. However, after automakers posted weak sales in September, incentives will continue to be a marketing tool to move vehicles. For F&I managers, that means making sure the dealership’s sales staff has the most current rebate and incentive information. There’s nothing worse than quoting a payment based on incorrect information.

 

Due to weakness in the housing market and declining consumer confidence, overall U.S. auto sales were down 3 percent from last September, according to Autodata Corp. Ford Motor Co. saw sales plummet 21 percent for the month, largely due to a 62-percent reduction in sales to rental car companies. Sales for Toyota Motor Corp. dropped 4 percent, and Chrysler LLC posted a 5-percent drop in sales. Bucking the trend were General Motors, Honda and Nissan.

 

And while the Federal Reserve’s interest rate cut in the middle of the month did help calm the market that the tightening mortgage market won’t impact automotive credit, insiders believe its impact won’t be felt for months. The industry is also expected to feel the effects of higher energy prices and a continued slump in markets like California and Florida through the fourth quarter. The question is how incentives will play a role in offsetting weak sales.

 

“Some may have thought that this soft market would inspire the automakers to increase their incentives to boost sales, but that isn’t happening,” said Jesse Toprak, executive director of Industry Analysis for Edmunds.com, which estimated that the average automotive manufacturer incentive in the United States decreased 7.1 percent from August to September and 10.4 percent from the same month last year. “Actually, many automakers seem determined to stay true to the ‘value pricing’ strategy that sets MSRPs closer to expected transaction prices. Even though this eliminates generous incentive offers that sometimes catch consumers’ eyes, the strategy protects automakers from regularly sending the brand-damaging message that their vehicles are always on sale.”

 

According to Edmunds.com, combined incentives spending for domestic manufacturers averaged $3,156 per vehicle sold in September 2007, down from $3,354 in August 2007. From August to September, European automakers decreased incentives spending by $124 to $2,815 per vehicle sold. Japanese automakers decreased incentives spending by $155 to $1,127 per vehicle sold, while Korean automakers decreased incentives spending by $26 to $1,783 per vehicle sold.

 

CNW Research’s September report on August market conditions shows that incentives were given on 62 percent of vehicles sold in August vs. 61 percent in July. It went on to say that August was a mixed bag of good and bad news. The average Manufacturer’s Suggested Retail Price (MSRP) of vehicles sold in August were $31,168, up from July’s $31,149. However, because of bigger incentives, average transaction prices slipped a tad, it reported.

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