An oversupply of vehicles is causing automobile manufacturers and dealers to rev up their incentives and rebates on all types of models.
The large supply of inventory, 120 days versus the ideal 60-day supply, has led to the escalation of incentives, says Paul Taylor, chief economist with the McLean, Va.-based National Automobile Dealers Association, or NADA.
“In many cases, the deals are tremendous,” he says.
To entice tire kickers, the manufacturers are going overboard with larger-than-usual cash-back rebates, zero-percent financing for up to 60 months and other deals. Hyundai Motor America, Ford Motor Co. and General Motors Corp. have created programs in hopes of removing buyers’ fear of not affording car payments if they are laid off.
“When one person in the cul-de-sac is laid off, you have at least six or seven other people concerned about layoffs,” Taylor says. “The fact that a car is a big-ticket purchase means that customers are in some cases more reluctant to commit to a new car purchase at a time when there’s some uncertainty with performance in the economy.”
The Hyundai Assurance Plus program — the first launched by a manufacturer — allows buyers who lose their income within a year of financing or leasing a new vehicle to return it with no impact on their credit. The Ford Advantage Plan covers payments for up to one year on a new Ford, Lincoln or Mercury if the customer loses a job. The GM Total Confidence plan covers payments for up to nine months if buyers lose their jobs within the first 24 months of ownership.
“The deepness of the recession has caused manufacturers to pretty much pull out all the stops they can to try to move car sales,” says Jack Nerad, executive editorial director and market analyst for Irvine, Calif.-based Kelley Blue Book and kbb.com.
The NADA expects U.S. light vehicle sales to total 12.7 million units this year, although Taylor says first-quarter sales were at a slower pace than expected. He expects sales to pick up in the third quarter, boosted by greater availability of credit.
Global demand for passenger cars and light commercial vehicles is expected to reach 53.3 million units this year, an 18 percent decline from 2008, according to R.L. Polk & Co., a Southfield, Mich.-based provider of automotive information and marketing solutions.
Hoping to jump-start sales
Nerad says the incentives are double and even triple what he’s seen in the past, including $5,000 to $7,000 cash-back deals in addition to low- and no-interest financing.
“These days the manufacturers and dealers are so hungry to make a deal,” he says.
In the past, there were occasional $5,000 incentives, but that was the exception, Taylor says. The incentives also are more inclusive of all makes and models.
During the summer of 2008, Taylor noticed offers typically on larger sedans, sport utility vehicles and trucks as customers resisted the high gasoline prices. Although fuel prices have declined, automakers are seeing people reluctant to buy any type of vehicle, Taylor says.
“The incentives that are available are stronger than they’ve ever been and dealers are trying very hard to get cars sold as well,” he says.
Domestic automakers are leading the efforts, Nerad says. However, Toyota and Honda’s lower sales levels are putting them in the position to offer incentives, too, he says.
Zero-percent, 60-month financing was available on the 2009 Toyota Yaris three-door this spring, making it one of the offers on kbb.com’s weekly list of 5 Great Car Deals. Other vehicles, like the 2009 Chevrolet Malibu and 2010 Ford Fusion, also were included in their makers’ 30- to 60-month, zero-percent financing offers.
Deals on some new cars are so favorable they make those models cheaper than used cars — even models just a year old, according to data from Edmunds.com. Its list of vehicles in that category include the Honda Civic; BMW’s 1, 3, 5 and 6 Series; and the Mazda3, as well as models by Audi, Nissan and Mitsubishi.
Edmunds.com reports a buyer can save as much as $795 by purchasing the new vehicle because used cars are financed at a higher rate than new cars. But with special finance rates being offered by automakers — for which Edmunds estimates about 18 percent of new-car buyers qualify — savings can be as high as $6,175.
Low-cost lease deals, which had vanished, also have returned as manufacturers pull out all the stops, Nerad says. It offers more of a comfort level with the credit situation, which is still problematic.
He says that the offers are more prevalent on all makes and models, whereas in the past a low lease price would have been on a four-door sedan with a manual transmission, then the dealer would “upsell” buyers to a vehicle with automatic transmission.
For some offers, the credit and other restrictions aren’t as stringent as they have been in the past, experts say.
Nerad says the environment is changing so rapidly that incentives vary by area of the country and by week, causing buyers to be vigilant about doing their homework.
“If there is something going on in a particular region, they might throw extra money at a particular model to try and move it,” he says.
Lori Johnston is a freelance writer based in Georgia