We showed yesterday the truly dreadful state of this economic recovery had one odd bright (green) spot [8], US auto production (and sales). While cash-for-clunkers started it, and easy money from the Fed expanded it (via credit for an ever-growing cohort of subprime borrowers [9]), the car companies have now reached back into the bag of old tricks that blew them up before - incentives in May jumped to 8% of market value - or almost $2,500 per vehicle - the highest in over 2 years. If things are going so well in this 'recovery' why are the car makers forced to squeeze margin for volume... The problem, as BusinessWeek reports [10], is that increasingly rich incentives aren't moving the needle much on sales.
[11]
Via BusinessWeek [12],
The economy may be having a car sales party, but automakers are spiking the punch. U.S. auto incentives in May jumped to 8 percent of market value—or almost $2,500 per vehicle - marking the highest level in about two years, according to data released Tuesday by Edmunds.com.
Car companies are squeezing margin for volume... During the dark days of the recession when consumer confidence was running on fumes, carmakers were offering about 10 percent of vehicle value to get buyers onto lots.
The problem is that increasingly rich incentives aren’t moving the needle much on sales. The pace of car-buying, while brisk, hasn’t changed much since November when the country was on an annual pace of 15.46 million light-vehicle sales. That figure had trickled down to 15.24 million in May, even as incentive deals have been getting sweeter all the while.
...
Detroit’s Big Three have been particularly generous. Chrysler offered incentives worth 10.3 percent of vehicle value last month, second only to Mitsubishi, which has more freedom to squeeze profit margins given the weak yen. General Motors’ (GM) incentive rate was about 10 percent, in part because of cash offers of $500 to $750 per Chevrolet over the Memorial Day period. Ford (F) has been offering almost 9 percent off market value.
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