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?
Dealers are being forced to carry their own paper. This is an effective de-leveraging of the independent dealers. A process not unlike what is happening in other credit markets. Unfortunately most independent dealers do not have the tools to manage loans for re-sale at or near par value. We at ZimpleMoney.com are offering online loan servicing software for independent car dealers. It matches dealer revenue with software costs. We’ll aggregate dealer loans for resale to buyers or dealers can sell bulk loans to their regular community banks and credit unions. it is not a perfect world today – we need to get innovative with ideas.