Following the recent earthquake, tsunami, and nuclear crisis in Japan that led to reduced vehicle production and supply, along with rising gas prices and the shuttering of numerous plants by Detroit auto manufacturers, the demand for new cars, especially smaller fuel-efficient models, has increased dramatically in the midst of an impending inventory shortage. As a result, most automakers no longer feel the need to offer as many enticing incentives to buy.
According to Edmunds.com, incentive spending by automakers in April 2011 plummeted to an average of only $2,118 per vehicle, the lowest it has been since bottoming out over five years ago in October 2005 at $1,962, with the Big Three American domestic producers – Chrysler, GM, and Ford – showing the largest decline.
In the current economic climate, with the laws of supply and demand dictating the U.S. automotive market, car prices are likely to continue to rise across the industry. This may prove to be a major limiting factor with buyers who are used to being able to take advantage of incentives that influence their decision as to whether they want to invest in a new vehicle or not.
Not all auto manufacturers are experiencing shortfalls and reducing incentives, so those customers who are unwilling to pay higher sticker prices may still be able to find attractive deals with substantial incentives elsewhere.
For example, Korean automakers were not as significantly impacted by the disaster in Japan, and thus were the only vehicle manufacturers to effectively increase overall spending on special incentives during the same time period. Therefore, buyers considering cars produced by Kia or Hyundai are much more likely to still be offered healthy incentives.
The price of fuel is also playing a role when it comes to sales of vehicles within certain segments, such as large gas-guzzlers where incentives tend to continue to be the largest, and analysts predict those hefty incentives will continue to persist or even increase.
Although there are exceptions, Edmunds.com director of industry analysis, Jessica Caldwell, noted that the trend toward fewer incentives “is the clearest indication yet that automakers are gearing up for inventory shortages.” She added, “Demand for new cars has been growing as the economic recovery has strengthened, but consumers will likely be deterred by higher net prices.”
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