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Comeback for auto incentives?

By Claes Bell ·
Saturday, March 5, 2011
Posted: 7 am ET

The Detroit Free Press has an article this week on how car makers are revving up incentives:

Several major automakers today launched a new round of incentives to keep February's strong sales momentum heading into spring.

General Motors, whose February sales surged 46.4 percent from a year earlier after it had industry-leading incentives, today launched a new set of deals including offering zero-percent financing for 60 or 72 months on 2011 pickups and full-sized SUVs, including $2,500 cash back. Customers can get even more if they finance through Ally or GM Financial.

Chrysler, meanwhile, extended its "No Charge Hemi" promotion on Ram 1500 pickups and is offering $2,000 rebates on leases of the 2011 200.

"They did come out with a very broad range of incentives," said Dan Frost, owner of Southfield Dodge Chrysler Jeep and Telegraph Dodge Chrysler Jeep. "Now we're back into competing with Ford and GM again."

Ford also announced new discounts on its F-150 pickup.

These deals sound pretty good, especially the zero percent auto loans being offered by GM, but I'm not sure they're anything to write home about compared to what was available even a few months ago. Tracking individual incentives is all well and good, but I think a better number for figuring out whether there are deals to be had at America's car dealerships is the percentage of a vehicle's MSRP people end up paying on average.

According to the most recent numbers from the wonks at CNW Research, it's a pretty bad time to be looking for a discount on a new car. January 2011 saw buyers paying the biggest percentage of cars' MSRPs (86.48 percent) since at least January 2005. January 2011's numbers are up from an average of 82.28 percent in 2010 and a low of 75.14 percent in 2009.

I'm not really that surprised by these numbers, as German and Japanese automakers haven't, in my experience, ever been that enthusiastic about offering big incentives on their vehicles, and one of the big lessons Detroit learned from their setbacks in the aughts was that overproducing and discounting wasn't a viable business model. Ford's leadership in particular has publically said they'd rather sell fewer cars with a better profit margin on each than the other way around.

Maybe the coming months will be a lot different than January 2011, but with automakers fielding healthy profits and the economy on the mend, I doubt we'll see incentives anywhere near what they were when automakers were trying to cut any deal they could in mid-2009.

I guess the takeaway is, if you really need to buy a new car in the next few months, it's probably a good idea to at least look at some of these deals. But if you're sitting on the fence about whether to buy a new car, I'd wait a few months to see if there's a significant uptick in incentives, especially if gas reaches $4 this summer as many are projecting. When gas jumps like that, auto sales tend to slow, and that means more automakers looking to make a deal to move iron off the lot.

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