Incentives Drive Car Sales

In an effort to drive sales and gain market share, auto makers revved up their incentive programs some 17% over the past year, saving consumers thousands of dollars off a vehicle's sticker price.

According to Edmunds.com, the average manufacturer incentive per vehicle sold in the U.S. was $2,365 in January, up $343 from a year earlier. The automotive Web site calculated this figure taking into account all the various programs car makers offered, including cash rebates to consumers and dealers, as well as zero-percent financing.

Where were the best deals? State side. The three American auto makers spent the most on incentive programs, with Chrysler offering $3,851 per vehicle, General Motors $3,479 per vehicle and Ford $2,829 per vehicle.

The Oldsmobile and Cadillac brands, both made by GM, took the lead, offering the largest per-vehicle incentives of $4,869 and $4,843, respectively. Among auto segments, the best deals were found on large cars, which offered the highest average incentives at $3,868, followed by large SUVs at $3,403 and minivans at $2,865.

Foreign auto makers were less inclined to play marketing games and put forward cash-back and dealer incentives. The Japanese car makers offered just $879 per vehicle, while the Europeans handed out $1,292 per vehicle and the Koreans spent $1,692 per vehicle.

Not too surprising, highly desirable brands pitched the fewest financial incentives. Lexus provided consumers with just $153 per vehicle while Hummer offered a slightly higher incentive of $277. Luxury SUVs spent just $1,121, 67% less than larger sport utility vehicles. And consumers could find $1,751 in incentives for compact cars and $1,844 for flashy sport cars.

While cars and trucks are expected to remain pretty cheap for the next few years, consumers should be aware of a few developing trends -- especially among the American players. Auto makers plan to introduce a new pricing strategy, says Jesse Toprak, director of pricing and market analysis for Edmunds.com. They are going to dial back incentive programs and drop sticker prices closer to actual transaction prices. The objective is to eliminate the expectation of large cash rebates and low APR programs. Instead, they would rather boost a brand's level of prestige and let the vehicles sell themselves, he says.

The good news is that this new strategy shouldn’t have too much of an effect on consumers' pocket books. In most cases, it should be a wash. Newly updated and designed models, however, could prove the exception and end up costing a fair bit more, warns Edmunds.com's Toprak. That's already the case with the 2004 Dodge Durango. While its average 2004 sticker price dropped $1,230 from the 2003 model, the average net price (adjusted for manufacturer incentives) increased significantly to $32,333 from $26,942. (To figure out the average net price for your next vehicle, go to www.edmunds.com and click on the "True Cost to Own Calculator".)

While pricing on select vehicles may creep higher, buyers should get more bang for their buck. Lots of features, including ABS brakes and extra air bags that used to cost extra, will become standard issue on most new cars in 2005.