Automaker Incentive Programs Helped Boost Sales in August

In order to make room for new 2013 models, many automakers are rolling out incentive programs designed to entice dealers to move their current inventory. General Motors Company, Toyota Motor Corporation and Honda Motor Company are offering generous rewards to dealers who meet their sales targets. The incentive programs are a highly effective way to make room for new inventory, but can entice dealers to offer steep discounts that actually end up losing money in the long run.

Dealer Brian Hamilton, who owns GM, Subaru and Chrysler dealerships in Nebraska, says such incentives are tempting but also dangerous to a dealer’s bottom line.  “When you’re toward the end of the month, all dealers fight to hit their number. If you’ve got 15 or 20 to go, some dealers just give up and don’t participate, but some do some crazy things to make their number,” said Hamilton. “It’s a carrot that the manufacturers hold out and we all run for it,” he added.

Many analysts believe incentive programs are at least partially behind the 18 percent rise in light-vehicle sales this month according to a recent Bloomberg survey or nine analysts. But some dealers have begun speaking out against the practice which they say reduces profit margins on new and used car sales, and can alienate buyers who miss out on the end-of-month deals.

Some dealers, however, like the flexibility the programs offer them. Honda Motor Company has been offering incentives of up to $1,000 per sale to dealers since last March to help bolster sales of the Accord sedan. Hagerstown Honda owner Paul Ritchie says, “It’s helped the consumer get a little bit better deal. When the customer needs another couple hundred dollars for their trade, we’ve got something to work with. It just makes deals possible.”

Honda Motor Company’s six-month Accord incentive has helped it recover from the drop in U.S. sales that resulted from the March 2011 earthquake and tsunami, and made room for the redesigned 2013 model.

Honda has seen a 59 percent increase in deliveries this month according to a Bloomberg survey of seven analysts. Toyota Motor Company is expected to report a 40 percent increase in sales.

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