DETROIT (Reuters) - Incentives on new vehicle sales will be the lowest in May than for any month since 2006, based on thinning inventories due to the Japan earthquake, industry consultancy Truecar.com said Thursday.
Demand for cars is rising slightly as the U.S. economy remains in a gradual recovery, TrueCar analyst Jesse Toprak said, adding to the ability of carmakers to lower incentive spending.
"Demand is up a bit, and the inventories are down," Toprak said. "There is no reason for (automakers) to leave money on the table and overspend."
Truecar hasn't estimated average incentive levels for May, but expects them to fall from April's $2,300 level.
Truecar says incentives have not been that low since they stood at $2,505 in April 2006. In May 2010, incentives averaged $2,850 per model.
Automakers have shown greater pricing discipline in the past few years and Wall Street has put pressure on major automakers to keep incentive spending down.
Earlier this month, General Motors Co. reported its fifth straight quarterly profit. But its shares fell that day because analysts said the No. 1 U.S. automaker was overly generous with incentives early this year.
"In 2006, strength in the economy allowed automakers to cut incentives because there was plenty of demand and they could still sell well without them," Toprak said.
Five years ago, 16.5 million new vehicles were sold in the U.S. market, compared with 11.6 million last year and a projected 13 million this year. May sales are expected to fall from April because of lower incentives and thin inventories, J.D. Power and Associates said today.
Japanese automakers Toyota Motor Corp. and Honda Motor Co., along with GM and Ford, have shown the biggest drops in incentives in May compared with recent months, Toprak said. Hyundai Motor Co.'s incentives fell, but were already at a low level, he said.
"Almost every automaker but the European luxury brands have significantly cut incentives," Toprak said.
Remaining flat in May on incentives are luxury brands BMW AG , Mercedes-Benz, and Volkswagen AG's Audi brand, TrueCar said.
Nissan Motor Co. is bucking the trend by raising incentives slightly, because it had more stock than Toyota and Honda before supplies were crimped by the March 11 earthquake in Japan, Toprak said.
"Nissan is taking advantage of the lack of cars by Toyota and Honda and seeing a chance to increase its market share," Toprak said of Nissan's higher incentives.
Limited supply of small cars such as the Toyota Corolla and Honda Civic as gasoline prices are near $4 per gallon have given GM, Ford and Hyundai a good opportunity to gain market share, Toprak said.
Rival small cars that are likely to benefit include the GM Chevy Cruze, Ford's all-new Focus and recently introduced Fiesta subcompact, and the Hyundai Elantra, he added.
Toyota and Honda have seen market share declines in the United States of over 20 percent in May from April so far, said industry consultant Edmunds.com.
Toyota and Honda U.S. dealers have said they expect little inventory for best-selling cars until at least June.
Through April, four of the top five best-selling cars in the U.S. market this year were from Toyota or Honda. The drop in Honda and Toyota stockpiles will open the window for competitors to gain share, Toprak said.
According to Autodata Corp., the top-selling cars in the U.S. market through April were, in order, the Toyota Camry, Honda Accord, Toyota Corolla, Honda Civic and Ford Fusion.
The Ford F-Series pickup truck and the Chevrolet Silverado pickup trucks outsold the Camry through April.
David Phillips contributed to this report