Crowded lots mean deeper discounts
By Shawn Langlois, CBS.MarketWatch.com
Last Update: 3:57 PM ET Oct. 26, 2004

Whether offering wads of cash or discount financing, car dealers are still struggling to lure customers to their lots, even with the debut of several hotly-anticipated models like the Ford Mustang.

Shoppers fixated on the new 2005 lineup can jump on the bargain bandwagon as plenty of these vehicles are already overstocked and ready to be snatched up on the cheap.

Dealers, for instance, are carrying up to 16 weeks inventory on the following discounted 2005 vehicles, according to CarsDirect.com. All offers expire Nov. 1 except where noted:
- Chrysler Pacifica - Up to $3000 ($1000 of this total is finance bonus cash)
- GMC Canyon - Up to $2500 ($1500 of this total is GMAC finance bonus cash)
- Chevy Colorado - Up to $2500 ($1500 of this total is GMAC finance bonus cash)
- Ford Escape - Up to $2000. Deal expires Jan. 3.

Ford, GM and Chrysler all have some form of incentive - whether rebates, discount financing or dealer cash - on most of their 2005 models already. Some exceptions are the Ford Mustang and Freestyle and the Chevy Corvette and SSR, none of which now offer incentives, according to CarsDirect.com.

"Lots of these introductions and redesigns are being received more positively and require fewer incentives than a year ago," said Jesse Toprak, Edmunds.com's director of pricing and market analysis.

2004 deals abound

As is always the case, the steepest discounts still are on outgoing 2004 models, many of which will still be around for awhile at current slow sales rates.

"The record level of incentives for the 2004 models we saw last month will keep increasing until they're all done," Toprak said.

Manufacturers, led by Ford Motor (F: news, chart, profile) and GM (GM: news, chart, profile), spent a record $3,146 on each vehicle sold in the United States, up 20 percent from a year ago. Cadillac, for instance, offered up the biggest discounts at $6,281 per vehicle. See full story.

Dealers will be hard-pressed to match these historic highs in terms of incentives in October, but certain overstocked models will continue to dish out the rebates. Here are some of the best currently on the lot, according to CarsDirect.com:
- Ford Ranger Pickup - Up to $3000
- Dodge Ram 1500-3500 - Up to $3500 for the Ram 1500, up to $2500 for the
- Ram 2500 and Ram 3500
- Mazda 6 - Up to $1500
- Nissan Titan - Up to $2000
- Nissan Frontier - Up to $2500
- Ford Expedition - Up to $4000

As this list suggests, Japanese automakers like Toyota (TM: news, chart, profile) and Honda (HMC: news, chart, profile) have managed to avoid the massive incentives that have driven demand for their U.S. counterparts. As a group, they spent only $911 in September, a decline from a year ago.

Also look for redesigns

Eyeing 2004 models that were redesigned for 2005 can bring in a nifty discount, but Phil Reed of Edmunds.com cautioned that these vehicles tend to lose their value faster as consumers thirst for the new look, the increased power and/or the superior safety equipment.

"Some of the best discounts are offered when the manufacturer is introducing an enhanced, redesigned version for the next model year, as is the case for many of the vehicles we listed," he said. "This type of shopping is better suited to bargain hunters than trendsetters."

In addition to the CarDirect.com list, Edmunds.com noted that the following 2004 models can also be bought at a steep discount from the sticker price: BMW 325i Sedan, Cadillac DeVille, Chevrolet Corvette, Dodge Dakota, Ford Mustang, Honda Odyssey, Nissan Pathfinder, Subaru Legacy, Toyota Tacoma and Volvo S40.

Nov. 11 /PRNewswire/ -- Edmunds.com (http://www.edmunds.com), the premier online resource for automotive information, reported today that the average manufacturer incentive per vehicle sold in the United States was $2,655 per vehicle sold in October 2004, up $134, or 5.3%, from October 2003, and down $491, or 15.6%, from September 2004.

True Cost of Incentives(SM) (TCI(SM)) report takes
into account all of the manufacturers' various United States incentives
programs, including subvented interest rates and lease programs as well as
cash rebates to consumers and dealers. To ensure the greatest possible
accuracy, Edmunds.com bases its calculations on sales volume, including the
mix of vehicle makes and models for each month, as well as on the proportion
of vehicles for which each type of incentive was used.

Overall, combined incentives spending for domestic Chrysler, Ford and General Motors nameplates was $3,663 per unit in October, down $616 from September 2004. Chrysler lowered incentives spending in October by $133 to $3,644 per vehicle and gained 1.0% market share, achieving 12.8% in total. Ford decreased incentives spending by $637 to $3,410 per vehicle, and gained 0.3% market share, achieving 18.4%. GM had the most dramatic drop in incentives spending in October, down by $735 to $3,858 per vehicle. GM experienced a steep 6.0% decrease of its U.S. market share, falling to 25.3%, which is its lowest point since September 2002.

As a result of GM's decrease, total U.S. market share for domestic nameplates fell to 56.5%, the lowest in recorded history.

In October 2004, Korean automakers reduced incentives spending by $22 to average $2,185 per vehicle while European automakers reduced incentives spending by $167 to average $2,330 per vehicle sold. Japanese automakers spent $929 per vehicle sold in August, up slightly from $911 the prior month.

"Most manufacturers did not have to rely on incentives as heavily this month since they were selling more 2005 model year vehicles," said Dr. Jane Liu, Vice President of Data Analysis for Edmunds.com. "Also, consumers realize that 2005 models will hold their value longer than their 2004 counterparts, and are willing to pay more for them."

Of all brands, Mini spent the least on incentives, $12 per vehicle sold, while Scion spent only $73 and Lexus spent just $167. At the other end of the spectrum, Lincoln was the biggest spender in October at $4823 per vehicle sold, followed by Saab at $4,566 and Jaguar at $4,345.

Among vehicle segments, large SUVs continued to offer the highest average incentives, $4,680 per vehicle sold. Other segments with high incentives were large trucks at $3,373 and large cars at $3,258. Compact cars had the lowest average incentives at $1,449 per vehicle sold, followed by luxury sports cars at $1,880 and luxury SUVs at $1,933.

"In most cases, vehicles with high sticker prices tend to have correspondingly high incentives, but the luxury sports car and luxury SUV segments are selling without much money on the hood," observes Dr. Liu. "Products in those segments are very desirable right now, even as fuel prices fluctuate."

Midsize cars have lost the most market share since October 2003, decreasing from 16.6% to 15.6%, while large cars have gained the most market share during that period, up from 4.2% to 5.8% of the U.S. new vehicle market.