Are Incentives Working?
American Honda Finance Corp. plans to bump up incentives to reduce excess inventory, while other captives are using money-back offers to lure car buyers seeking to trade in their Toyotas.
Overall, incentives averaged $2,382 last month, down $160 from December 2009, according to Edmunds.com. But how effective are incentives these days?
Take a look at this chart tracking incentives and vehicle sales, dating back to January 2008 (incentive data is culled from Edmunds.com):
From July 2009 through yearend, incentives and sales had an inverse relationship. For instance, despite a 2% boost to average incentives in November, sales fell 11%. The reverse held true in December. Though incentives dropped 6%, sales shot up 38%.
It seems to me that incentives have lost their luster. They might spark some sales, but the correlation is no longer a sure thing.
So here’s a bold idea: Let’s get rid of incentives altogether. If one lender took the lead — or a few banded together — to lower MSRPs across the board by a certain amount (maybe $500?), would others follow?
