DETROIT -- The rebates, interest-free loans and other incentives U.S. automakers have used to keep sales robust for much of the past year may be losing their allure, just as the industry braces for a slowdown.
According to analysts' reports on Thursday, incentives in February averaged $2,225 per new vehicle, a 10 percent increase over January and a 33 percent increase over the year-ago month. But the seasonally adjusted rate of sales fell to an annualized rate of 15.4 million, down from 16.2 million a month earlier and 16.6 million in February 2001.
The data are the first evidence of a trend that some industry executives have been warning about for several weeks. Ford Motor Co.'s head of revenue management said in January higher incentives were producing diminishing returns. And General Motors CEO Rick Wagoner echoed that theme this week, saying GM was searching for the "right kind of consumer hook" to boost sales.
"Based on February sales results, we are concerned that consumers' responsiveness to incentives is beginning to dull," Merrill Lynch analyst John Casesa said in a research note.
The Big 3 continue to have the highest incentives in the industry, averaging about $2,900 per vehicle. Despite offering more than $3,000 per vehicle in incentives -- a 36 percent increase over February 2001 -- GM saw its sales fall 19 percent. Ford and Chrysler also raised their incentives by a similar amount, with Ford reporting flat sales and Chrysler posting a 4 percent decrease.
GM and Ford both announced they would cut production in the second quarter from year-ago levels due to larger-than-normal inventories of unsold vehicles and consumer concern about war in Iraq.
"The big change in auto company behavior, in our view, is that the Big 3 appear to be opting for production cuts rather than for a further escalation in incentives," said J.P. Morgan analyst David Bradley in a research note.
Foreign automakers also raised their incentives in February, but to a lesser degree. Major Japanese automakers averaged less than $800 per vehicle, while European automakers averaged about $1,600 per vehicle.
GM led the industry in incentives for much of last year, a strategy that allowed it to increase profits and U.S. market share even as it cut prices. But incentives only work if they boost sales enough to cover the reduction in revenue per vehicle, and many industry experts believe many of Detroit's deals no longer live up to that standard.