Reuters has reported that according to analysts' reports, incentives in February averaged $2,225 per new vehicle, a 10 percent increase over January and a 33 percent increase over February 2002. However, Reuters added that the seasonally adjusted rate of sales dropped to an annualized rate of 15.4 million, down from 16.2 million a month earlier and 16.6 million in February 2001.

Reuters said this data is the first evidence of a trend that some industry executives warned about. In January, Ford Motor Co.'s head of revenue management said higher incentives were producing diminishing returns.

"Based on February sales results, we are concerned that consumers' responsiveness to incentives is beginning to dull," Merrill Lynch analyst John Casesa said in a research note, reported Reuters.

According to Reuters, the Big 3 continue to have the highest incentives in the industry. Despite offering more than $3,000 per vehicle in incentives, GM saw its sales fall 19 percent. Ford and Chrysler also raised their incentives, with Ford reporting static sales and Chrysler reporting a 4 percent decrease.

Reuters added that GM and Ford both said they would cut production in the second quarter from 2002 levels due to larger-than-average inventories of unsold vehicles.

"The big change in auto company behavior, in our view, is that the Big 3 appear to be opting for production cuts rather than for a further escalation in incentives," said J.P. Morgan analyst David Bradley in a research note, said Reuters.