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February Manufacturer, Dealer Spiffs Climb

March 19, 2013

BANDON, Ore. — Manufacturer incentive levels jumped 15.5 percent to an average of $4,162 per vehicle in February, while the average MSRP of vehicles sold that month rose 3.7 percent over last year, according to a report from CNW Research.

Additionally, dealers put up another $1,305 in higher trade-in values, added features and from-profits discounting. That represented a 2.3 percent increase vs. a year ago.

“Even in the depths of the recession, approximately 75 to 80 percent of vehicles sold carried some form of manufacturer incentive,” CNW’s Art Spinella wrote in his firm’s March newsletter. “That, however, steadily grew, bouncing from just above to just below the trend line.

“In the last six months, however, more than 90 percent of all cars sold carried some form of incentive ranging from added factory-installed equipment to low-interest rates; from lease deals with discounted interest or inflated residual values to ‘free’ aftermarket products such as extended warranties or roadside assistance,” he added.

In February, the industry spent the equivalent of $4.4 billion in such incentives. Ford, General Motors, and Chrysler held nearly 46 percent of the total incentive cost, with the Asian brands actually having a higher share of the total at 53 percent. European manufacturers spent the remaining 1 percent.

“Some of these costs are hidden,” Spinella wrote. “Instead of being made directly to the consumer or car buyer, they are given to the dealership to be used as needed to ‘close’ a deal, and, as such, are not reported as ‘incentive spending.’ Most companies report this expenditure as ‘marketing’ expense.”

Direct-to-consumer incentives build floor traffic while incentives to dealers are used to complete a sale, Spinella added. For example, GM spent roughly 69 percent of its incentive dollars in direct-to-consumer promotions. Nissan, however, spent only 59 percent of its incentive dollars in direct-to-consumer spiffs, according to the report.

“While sales are on track for a 15.7 million-unit year, much of the growth will be on the back of incentives putting the industry in the position of perhaps overspending — something the bottom line can’t afford at any automaker,” Spinella concluded.

Comments

  1. 1. Gary Bishop [ March 21, 2013 @ 06:01AM ]

    This is good news for all of us in the F&I Trade. As we know, nothing happens until someone buys a vehicle. The combination of auto sales production trending upward and used vehicles maintaining higher values provides the dealer with ample opportunity for both front end and after the sale income. The bonus is that the used vehicle index continues to be in the 120's, which is more likely to mean a stable GAP cost for the dealer. Typically whenever our dealer clients win, we do as well.

 

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