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Back in August '06, GM announced "Value Pricing" policy. Yes, well, Edmunds.com reports that cash back and special financing offers are back, and they're big. "Incentives have been boosted to the levels we saw regularly before automakers instituted the 'value-pricing' strategy that aimed to reduce sticker prices and minimize the need for incentives." The Dallas Morning News has the list, and it ain't pretty for profits. While you'd expect the arthritic Mercury Marquis ($6500) and lame duck Dodge Ram ($5k) to offer incentives, the Explorer's $4k, Focus' $2k and 300C's $2k has got to hurt. Even the highly-touted Cadillac CTS (1.9 to 4.9 percent) and Malibu (5.9 to 7.9) are using financing to help move the metal. The transplants are playing the game as well; the struggling Nissan Titan comes with a $5k come-on and the new Toyota Tundra slaps up to $3.5k on the hood, or zero to 3.9 percent financing (which Box forgot to mention). Overall, the numbers tell a familiar tale. "In its most recent assessment, Edmunds.com found that the average incentive in February for the Detroit Three was $3,393 per vehicle, while European brands spent an average of $1,945 per vehicle sold, Japanese brands averaged $1,313 per vehicle sold and Korean brands spent $1,807." 24 Comments on “Sales Incentives Soar, “Value Pricing” RIP...”
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“Buy a car, get a check!”
– Joe Garagiola, Superbowl halftime commercial, Jan 12, 1975Although it was Garagiola everyone remembers, it was the late Chrysler exec Bob McCurry who came up with the original idea to slap a $200 rebate on Plymouth Dusters and Dodge Darts.
In addition to the now (in)famous rebate program, McCurry was known for other memorable period Chrysler ad campaigns such as the Dodge sheriff, Plymouth’s Mean Mary Jean, and Ricardo Montalban hawking the ‘fine Corinthian leather’ of the Chrysler Cordoba.
After he retired from Chrysler, one of his more recent accomplishments was being instrumental in Toyota introducing a full-size pickup truck in the US.
If a Focus can be sold with at least some minimal profit after knocking off $2k, then someone isn’t telling the truth about the profitability of small cars. (I think we can assume they aren’t selling them at a loss)
Dynamic88:
(I think we can assume they aren’t selling them at a loss)
Given CAFE regulations and the need to keep factories turning over, I don’t believe that’s a safe assumption.
Just asking, but in terms of engineering, style, marketing etc…how unappealing does a product have to be if you have to pay someone to buy it?
I think the only way they can get away from the incentives-game is for all of the car makers to make some decision to collude and not offer any incentives to anybody. Overall new vehicle demand would shrink but it would allow carmakers to a actually make cars nice – instead of making them cheap. But then such collusion would be illegal; so we’re stuck with crap-boxes in the USA.
Americans by and large now have the WalM-art mentality; and they’ll take cheap stuff in a large quantity over nice stuff.
But what sucks is that incentives on vehicles abroad are also pretty intense. I remember reading an issue of Top Gear where they showed that incentives on a Jeep Commander were about five thousand… British Pounds. That’s insane.
And even Maserati had $10K incentives on their closeout Quattroporte last year. I hate the incentives game, but it’s here to stay.
Value pricing is a farce anyway… the incentives were probably in the plan all along.
Instead of these incentive games and value pricing BS, why not just price vehicles at their REAL selling price?
“(I think we can assume they aren’t selling them at a loss)”
It seems almost unfair to mock them like that.
I saw a new Cadillac CTS for the first time a few days ago, and was really impressed!
Regardless, I would not consider it at this time preferring to wait at least a year for reliability and depreciation numbers. There is also a concern for GM’s viability. It may not be around to support it.
I’ve always thought the same thing as what Dinu is saying… What’s the deal with not pricing the product what the market is willing to pay for the product?
Instead of these incentive games and value pricing BS, why not just price vehicles at their REAL selling price?
This is exactly what the incentives do. People who want the car early in the cycle and are willing to pay more do pay more. People who are willing to wait, and want the care less do pay less.
It’s only annoying if you care how much you pay relative to everyone else with the same merchandise, kind of like airline tickets.
Incentives work better on consumers’ perception than value pricing. Let’s say Vehicle A and B were roughly equal alternatives and one sold for $17,995 with a $500 dealer discount and the other sold for $17,995 with a $1,000 dealer discount and $1,000 cash back! Which do you feel like is the better deal? Trick question, other than personal tastes for intangibles, they’re the same. It’s just one *looks* like it is a better value. And consumers are stupid and fall for it EVERY time.
Some customers, like those shopping the Big 3 and Nissan particularly, are trained to expect larger discounts, which makes changing the model there even more difficult. And in rough economic times, consumers are even more obsessed with discounts! After this downturn, I wouldn’t be surprised if Toyota is suffering from incentive fever – the new Corolla is getting no traction here in the middle of Toyota country because it wasn’t discounted while the Civic has a great lease and Focus and Sentra have lease and cash back deals to choose from. Now that the dealers are putting some money on them, they’re starting to move a bit.
I suppose the whole industry, if they switched to value-pricing models at the same time, could survive after an initial period of skepticism where sales would, in fact, drop. But it’ll never happen. Consumers are too stupid to understand a model like that.
Dutch auction.
I’d also like to point out that although the article picks on a few domestic choices, there are all kinds of APR deals out in Toyota country on the brand-new, CR beloved Highlander. The unstoppable Camry carries a $1,000 rebate and in most places as much or more dealer discount. The supposedly hot B-segment Yaris has some Ben Franklins sitting on its hood. The lots are still packed with 2007 Tundras with $10,000 discounts from Toyota and dealer. The 2009 Corollas are barely moving because they can’t compete with the $1,000 rebates and $2-3k dealer cash being offered on the 2008s.
This incentive glut is not unique to the Big 3 right now. Economic hard times do that. And the numbers are going to skew towards someone like Ford or GM because 30-35% of their sales are full-size trucks which are in the middle of a massive segment downturn and pricing war. The Tundra was still less than 8% of Toyota’s sales last year. But it’s also important to note that Toyota’s incentive spending per Edmunds is up 40% YOY. Nissan is up 20%. Ford’s is up 4%. Chrysler was up 3%. GM was up 17% (almost all of that is accounted for by their full-size truck discounts). That was very quick head math, so it might not be completely accurate, but you get the picture.
robertsd: thanks for adding the perspective. I believe Hyundai would be another that is piling on the cash. To be fair to RF’s position…GM & Ford have less profit leeway to tolerate this rebate madness.
On the Grand Marquis, the $6,500 is only in the Mountain East region – all others is $5,500, though supplier programs get another $1,000 rebate added on.
Interesting thing about the Grand Marquis is the incentive for leasing is only $500, so in effect you leave $5,000 on the table by wanting to lease, which indicates Ford does not want you to lease, or Grand Marquis customers are not the leasing kind.
Now that we have seen that it takes $5500 to $6500 to move a Grand Marquis, could we tone down the “RWD as the savior of {GM | Ford | Chrysler} rhetoric? Clearly, the market is not going to cooperate.
RobertSD, I’m not so sure about that… I spot-checked a few area Toyota dealers and they have practically nothing for never sold 2007 inventory. Between the two dealers and 70-ish Tundras, just two are 2007s (perhaps strangely equipped or a nasty color). There’s some 2007 FJs. And a Yaris. Yes, one. No Corollas.
Besides the FJ and Tundra, Toyota isn’t carrying a lot of 2007s around here either and even the Tundra pile is getting smaller by the day thanks to the discounts. All of those rebates were for 2008 models except the Tundra’s. The 2008s are only carrying a $2,500 rebate and $4-5k worth of dealer discounts depending on the dealer and equipment level.
My point wasn’t about Toyota’s glut of 2007s overall because there isn’t one. My point was that no one is immune from the downturn. It’s true that the domestic automakers have less room to wiggle, but their incentives aren’t spiraling upwards – at least not Chrysler and Ford.
I try to add a balanced perspective to the discourse – not random diatribes. It’s not my intention even if it sounds like it sometimes.
Kixstart,
The incentive is on the Grand Marquis because it really hasn’t been updated in years. It’s nearly as old as its current demographic. Had Ford taken care of the model they wouldn’t have to put incentives like that on it. That model is in no way shape or form indicative of a RWD car’s appeal or lack of it.
Ok, so the Grand Marquis requires cash to move it. Why not update the MSRP to reflect this new reality? Is it b/c it lowers resale more than an incentive would?
@Dynamic88 :
Sad to say but the Focus was way unprofitable before the discounts…
Is that discount on the 2008 Focus???
Hmmm…. I’ve never understood cash rebates for cars. I’ve seen them advertised (“Buy today and get $1000!”). So they are giving you your own money and charging you interest. Why don’t they just reduce the price by the rebate?
I guess there are people out there who are dumb enough to borrow their own money. Weird.
The unfortunate truth of the matter is that incentives are used to sell everything from groceries (MVP discount cards), airline tickets(frequent flyer miles) and yes automobiles (rebates and financing incentives). When was the last time you made a purchase and weren’t being offered some type of maintenance agreement and or extra warranty coverage for a small fee?
It appears business can’t make sustainable profits without resorting to these psychological mind games in order to move product.
I see the Dallas Morning News skipped Toyota and the $4000 on the hood of new Tundras. I wonder why? Is your source reliable?
Juniper:
I see the Dallas Morning News skipped Toyota and the $4000 on the hood of new Tundras. I wonder why? Is your source reliable?
Terry Box (of the Dallas Morning News) is a sharp cookie. But you’re right to point out that he didn’t point out Tundra incentives. Which are…
0-$3.5k on 08 models
0-$5k on 07 models
or 0% on 07s
0-3.9% on 08s
I’ll add some of this info to the blog post. Thanks.