Most news stories about incentives have focused on concerns about how the discounts pinch manufacturers' profits, reducing their long-term ability to produce fresh models.
But, what are car buyers doing with the money they save with incentives? Tucking it under the mattress? Investing in hog futures? No, says George Pipas, chief of sales analysis at Ford Motor Company. "Instead of pocketing the savings, customers who are in the new car and truck market are opting instead to reinvest some of that savings into more features and equipment and, in some cases, higher-priced cars and trucks," he says.
The result of this upgrading is showing up in the data gathered by CNW Marketing Research of Bandon, Oregon, whose president is Art Spinella. "Transaction prices have risen to the highest levels ever. The actual average sticker price of vehicles sold (in the U-S) is now at $28,000," he says.
Furthermore, says Mr. Spinella, the transaction price rose from $21,000 to $28,000 in just about six months. And much of the increase can be attributed to incentives.
That jump and the reason for it may be surprising to some, but according to Ford's George Pipas, not to the manufacturers. "Over a long period of time, expenditures for new automobiles represent about four-percent of GDP (gross domestic product). And so, it's remarkably constant how much they (consumers) spend and, if they are given the opportunity to save money on their financing, it's not so surprising really that they would just turn around and invest the money that they typically do invest in an automobile in a product that has more features or even in a higher-priced product," he says.
This up-grading has produced a jump in sales for luxury and near-luxury brands. Automotive News reports they accounted for nine-point-two percent of new vehicle sales in the United States in the first four months of 2003, up from 8.7 percent in the same period last year. Again, Art Spinella. "Even though that wasn't the original intention, it's certainly what people are doing with the money that's being laid on the hood of new cars," he says.
As for the future of customer incentives, Ford's George Pipas says they'll be around for awhile. "There still remains around the world about twenty million units of excess supply. And until supply gets rationalized, and the demand and supply get back more into balance, I think consumers are going to continue to benefit from very generous and very affordable vehicles," he says.
Underscoring that situation are published reports that financing deals and cash rebates rose to record levels in April, with General Motors and Ford leading the way, even as Ford fretted over the effects of the discounts on the company's earnings forecasts.