Money Matters, Simplified.
Incentives work magic; boost auto sales in US
by Neka Sehgal - April 2, 2010 - comments
To lure customers, the automakers in U.S. introduced incentives that included low-interest financing, cheap leases, and free maintenance for return customers.
In what could be termed as a great month for the automobile industry, car sales in the U.S. rebounded strongly in March, as manufacturers rolled out aggressive incentives and consumers reacted positively sensing the worst of the economic storm has passed.
The auto market experienced a turnaround after a major slump over the past two years with the industry witnessing an increase of 24 percent, the industry's largest year-over-year increase in eight years.
"Sales were very strong in the first part of the month when the first of the big incentives took place, started by Toyota, and then it kind of waned through the end of the month. So I think April, we'll have to see how strong the retail demand really is," stated Michelle Krebs, senior analyst at Edmunds.com.
Incentives have the desired effect for most automakers
Toyota has been offering a string of incentives to lure customers in a bid to boost sales after the company took a major hit amidst safety recalls in January and February when sales slumped by nine percent.
The company introduced incentives which were soon matched by other car makers. These included low-interest financing, cheap leases, and free maintenance for return customers.
The aggressive campaign had the desired effect with sales increasing by 41 percent to 186,863, recording the second highest total in the month.
General Motors Co reported a 21 percent jump in new vehicle sales Thursday from March 2009 while Ford climbed nearly 40 percent exhibiting strong gains.
Honda Motor Co. said its sales surged by 23 percent to 108,262 vehicles over the previous year.
Meanwhile, sales at Subaru shot up 46 percent, while that of Nissan Motor Co. jumped to just over 43 percent. Hyundai Motor Co. witnessed a spurt of 15 percent.
However, Chrysler, the third-largest U.S. carmaker continued to struggle with sales down by eight percent to 92,623.
The slump in Chrysler's sales was due to the three Toledo-made sport-utility vehicles. Sales of the Jeep Wrangler dropped 16 percent last month from a year earlier. Jeep Liberty sales declined 11 percent, while those of Dodge Nitro lost 13 percent.
Some analysts skeptical
Although consumers are back in the showrooms, thanks to warmer temperatures, hefty incentives and optimism about the economy, some analysts are skeptical that the good news for the auto industry could be short-lived.
They are casting doubts about the recovery of the industry. According to them, the attractive incentives pulled buyers, who would have otherwise waited until later in the year to purchase vehicles, to the showrooms.
According to Brian Johnson, a Barclays Capital analyst, the rate of auto sales “over the rest of the year will largely depend on how long the industry’s pricing battle goes on ... which in turn could hinge on Toyota’s next move.
“Toyota might back away from incentives (in April) to test the market, but if it perceives lasting damage to its brand, we believe the automaker could be back with more offers.”