Automakers set a sales record, but it cost them

$5.34 billion is paid to buyers in incentives during July

1.81 million passenger vehicles moved

August 05, 2005|By John O'Dell | John O'Dell,LOS ANGELES TIMES

Automakers set a U.S. sales record in July, but it cost them plenty: a record $5.34 billion in incentives. That's $2,981 per vehicle to move all that metal, up 3 percent from a year earlier and an increase of nearly 5 percent from incentive spending in June, Edmunds.com, an automotive market information provider, reported yesterday.

The run-up was the result of the popular employee discount plans, which were offered for the first time last month to the public by all three U.S. carmakers. Foreign manufacturers increased their discounting to remain competitive, analysts said. In all, nearly 1.81 million passenger vehicles were sold in July.

That could spell trouble for General Motors Corp. and Ford Motor Co. and their hopes of cutting back incentives.

The two companies said this week that they would be cutting sticker prices and increasing the number and types of features on many 2006 models in hopes of weaning consumers off big rebates and other incentives.

But Jesse Toprak, senior analyst at Santa Monica, Calif.-based Edmunds, said the strategy might not work.

"The transition to lower sticker prices is going to be a sticky one," Toprak said. "People are used to incentives and are still going to want to know where their $5,000 or $8,000 discount is."

The monthly incentive spending tallied by Edmunds includes the cost of the employee discount plans offered by U.S. makers as well as the rebates, discounts and low-interest and cut-rate leasing plans offered by many importers.

Chrysler lowered sticker prices on its Dodge Durango sport utility vehicle in 2004 and on its family of minivans this year. But competition has forced it to increase incentives on the vehicles to the same levels they were at before the prices were lowered, Toprak said.

Automakers would have to provide "believable before-and-after price stickers if they hope to persuade potential buyers they can get a good deal without big incentives," said Wes Brown, an auto industry analyst at Iceology, a Los Angeles market research company. July's blistering incentive spree didn't guarantee car buyers the best deals ever. Chrysler and GM cut monthly average incentive spending: Chrysler by $73 to $3,623 per vehicle and GM by $56 to $4,135.

However, Ford buyers probably did well for themselves: The company increased its incentive spending by an average of $688 per vehicle, to $3,876, to remain competitive.

The biggest single incentive package, worth $11,253, was on Cadillac's 2005 DeVille model. On the other end of the scale, a handful of vehicles, including Chrysler's Crossfire sports car and eight high-performance Mercedes-Benz models, sold with no incentives.

Edmunds said big sport utility vehicles continued to need the largest incentives to lure customers wary of their heavy gasoline consumption. The average incentive spending on SUVs in July was $5,164 per vehicle.

The Los Angeles Times is a Tribune Publishing newspaper.

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