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Better auto deals ahead
Slow sales, full dealer lots could bring an increase in already record auto incentives this summer.
May 28, 2003: 10:14 AM EDT
By Chris Isidore, CNN/Money Senior Writer

NEW YORK (CNN/Money) - Automakers are heading into the summer sales season with big inventories of 2003 models on dealers' lots -- and even bigger incentives for buyers looking for deals.

April's incentives were the highest on record for automakers, according to auto sales tracker Autodata Inc. Figures show the average vehicle sold last month carried $2,500 in incentives, with the traditional Big Three -- General Motors Corp. (GM: Research, Estimates), Ford Motor Co. (F: Research, Estimates) and Chrysler Group, the North American unit of DaimlerChrysler (DCX: Research, Estimates) -- shelling out an average of $3,300 per vehicle.

"I do think we're still going to experience higher incentives in upcoming months, especially as the 2003 model year comes to a close," said David Lucas, vice president of Autodata. "Inventories are pretty high at this point. Even with strong incentives, there's a few too many vehicles in the market for the number of consumers buying."

Automakers are set to report May sales next Tuesday. While they aren't disclosing how the month is going, Lucas said Autodata's reading is that the month is going to be a bit short of automakers' hopes.

"Apparently May is coming up kind of soft, like April was," Lucas said.

April's incentives helped lift the industry's annual U.S. sales rate for the month to 16.8 million vehicles from 16.4 million in March, but it was off from the 17.6 million rate of a year earlier.

The weaker sales left Ford with about 925,000 vehicles in inventory, or about an 87-day supply, well above the 60-day goal. GM, which doesn't estimate days supply, had a bit more than 1.25 million vehicles in inventory, or about 25 percent above a year earlier level.

"The pressure to keep incentives high and move them higher will be pretty intense given amount of inventory and the relatively sluggishness we're seeing in sales," said Bob Schnorbus, chief economist for JD Power & Associates. "It's hard to imagine them going higher, but GM did throw another $1,000 [per vehicle] on its incentive programs the last week."

Analysts and automakers said that given the current economic outlook, and with only modest improvements in readings of consumer confidence, it's probably unrealistic to expect a really hot selling season this summer, even if they're looking for some continued sequential gains.

"Sales in the short term are going to be more governed by the general economic landscape than currency exchange rates or consumer confidence measures," said George Pipas, Ford's manager of sales analysis, referring to two economic measures that seem to be going the domestic automakers' way right now. "I'm not even sure 'moderate growth' describes the current economic expansion. Tepid is more like it."

And while automakers won't discuss their plans after the current incentives end Monday, Pipas admitted it's unlikely they will be scaled back, especially on 2003 models.

"Wherever the stake is put in the ground in March, April and May, you seldom see incentives get less generous," he said.

Zero percent, plus cash back

Zero-interest financing packages over 60 months are widely available on 2003 models. Lucas said that to move them before the fall arrival of 2004s, automakers may raise the cash back available to consumers, even offering cash plus zero-interest financing on some models. But other efforts may come in the form of dealer incentives that will allow them to cut prices further.

"The promotions may not be directly visible to consumers," he said. "You can only beat the consumers over the head so long with advertising about zero percent. There's a reduced sensitivity about it already."

Some of the cost of the improved incentives may come at the expense of television stations and other media outlets. Several network executives last week said the domestic automakers were the one major segment of the ad buying market whose purchases for the fall television season didn't show the expected gains from a year ago.

"With money spent on incentives, you can see results immediately. Advertising effectiveness is a much bigger question mark," said Autodata's Lucas. "I think you have seen a marketing budget realignment, with more money going toward incentives rather than advertising."  Top of page

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