Manufacturers don't like incentives, but they have one big reason for using them: They work.
Incentives cost a lot; they make sticker prices look dishonest; they pull sales forward. But incentives move the metal.
Fueled by incentives and lots of publicity about them, light-vehicle sales jumped 6.1 percent in April, to 1,357,984. It was the first time this year sales exceeded the 1997 month.
April of last year was a slow month, and that also helped the comparison. For the four-month period, light-vehicle sales totaled 4,896,828, down 23,019 or 0.5 percent from last year.
General Motors, which launched an incentive blitz in mid-March, led the charge to higher sales, including a GM record for April light-truck sales. GM's total light-vehicle sales gained 8.2 percent for the month. That put GM sales up slightly (about 3,600) for the year to date.
In typical Jack Smith fashion, the GM chairman was matter-of-fact about the need to offer incentives.
In a short interview in New York last week, he said, 'Pricing changed. We found ourselves not competitive with pricing, so we had to join the party.'
CHRYSLER EQUALS GM GAIN
Chrysler Corp., which also had record light-truck sales, matched GM's 8.2 percent gain for the month. Chrysler's car sales were down 8.5 percent, but that reflects lower fleet sales, according to John MacDonald, vice president of sales and service. He said retail car sales were up 2 percent.
Toyota Motor Sales U.S.A. Inc. and American Honda Motor Co. Inc. had record sales months, with gains of 10.5 and 12.5 percent. The Honda Accord was the top-selling car for the month, and it leads the Ford Taurus and the Toyota Camry for the year to date.
European importers, especially the Germans, were also big winners. Mercedes-Benz of North America Inc. gained just over 75 percent for the month, for a record of 16,318, including 3,995 ML320 sport-utilities. Mercedes handily outsold Lincoln, Cadillac and Lexus, even though Lexus also had a record month.
In terms of market share, Ford Motor Co. and the slumping Nissan Motor Corp. U.S.A. were the relative losers among big-volume players, even though Ford's unit sales were up slightly.
FORD TRUCK SHARE DIPS
Notably, Ford Division dropped 3.3 points of light-truck share. Ford trucks outsold Chevrolet trucks by fewer than 23,000 for the month. A year ago, Ford was ahead by more than 50,000.
Nissan Motor Corp. lost 1.1 points of market share. Nissan Division's volume was down 26.4 percent.
Jack Kirnan, auto industry analyst for Salomon Smith Barney in New York, said that GM's incentive program includes dealer cash, enhanced lease residuals, discount loan rates, special incentives for GM employees and dealers, as well as widely publicized 'loyalty certificates' for current owners.
Ford and Chrysler responded with loyalty coupons of their own, and Ford said it will honor GM coupons. Chrysler will accept both GM and Ford paper.
Kirnan estimated Big 3 marketing costs have reached an average of $1,700 per vehicle, compared with $1,250 in the first quarter.
Kirnan said publicity surrounding all the incentives has drawn attention to other good deals that are available. He said he fears that incentives are pulling too many sales forward, which may depress sales in the second half of the year.
GM's Smith said incentives are simply part of the cost of doing business: 'We asked ourselves, 'Where are our strengths?' '
'We're No. 1 in loyalty. More people buy us again. So we decided to do an incentive based on loyalty. A couple other manufacturers got upset with that and decided to copy us.
'Would we like not to be in the incentive game?' he asked rhetorically. 'You betcha,' he said. 'You have to deal with the realities of the marketplace, and that's one of the realities of the marketplace. So we moved.'