Auto dealers' incentives creeping up

April 05, 2008|By Dallas Morning News

DALLAS -- Big incentives are edging back into new-car dealerships.

With the economy slumping and gas prices spiraling, incentives that began creeping up in January gathered steam last month, increasing to an average of $2,435 per vehicle sold in February, according to Edmunds.com.

The 8.4 percent increase from February 2007 is significant because it suggests that automakers - particularly the Detroit Three - are being forced to return to the high, profit-sapping incentives they have all renounced.

Two years ago, for example, General Motors Corp. said it was adopting "value pricing," in which it lowered retail prices to reflect actual transaction prices at dealerships and reduced incentives.

In recent months, though, "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," said Jesse Toprak, executive director of industry analysis for Edmunds.com. "It's a car buyers' market, and that will likely be true for months to come."

Most big incentives are on full-size pickups and SUVs. But the amounts on some sedans are also growing.

In a recent list in Automotive News, the Chrysler Group had incentives on 24 cars and trucks, Ford Motor Co. offered them on 25 vehicles, and General Motors had 34 with cash on the hood.

Many offers were generous. Dodge had a $5,000 incentive on 2008 models of the Ram pickup, and Chrysler had $3,000 on its well-regarded 300C sedan.

Leo Griggs, who owns Park Cities Dodge in Dallas, says one of his challenges is selling the Dodge Ram in a tight market where gas prices are rising. The Ram is an older-design truck that's scheduled for replacement this fall.

Between dealer and customer incentives, "I can go $8,000 to $10,000 off the price of a Ram, and I can still make a good profit," he said.

Meanwhile, Ford was offering up to $4,000 back on its 2008 F-150 pickup - which, like the Ram, will be succeeded by a new model this fall.

Even the new Mustang, which was redesigned just three years ago and was once among Ford's hottest-selling vehicles, was carrying a $2,000 incentive.

Likewise, GM put $3,000 incentives on the full-size Cadillac DTS sedan and GMC Envoy midsize SUV, plus $2,000 incentives on vehicles such as the Chevrolet Silverado pickup, Tahoe, Escalade and Suburban SUVs.

Many industry observers expect incentives to keep going up until at least the summer.

"For a period there, incentives did go down," said Jessica Caldwell, an analyst at Edmunds.com. "They were down in the $2,000 range. But we have seen them creep back up into the $3,000 range."

In a 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 $1,945 per vehicle sold, Japanese brands averaged $1,313 per vehicle sold and Korean brands spent $1,807.

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