Big Incentives on Tap for 4Q

This holiday season might prove to be the best time for consumers to treat themselves to a new ride, as captives prepare to give the gift of incentives.

Kelly Blue Book’s Market Report for September suggests that strong incentives later this year, in the form of cash and attractive lease offerings, may lure customers into dealerships, both foreign and domestic, for new vehicles.

Certainly, there is a need to attract new-vehicle buyers. Consumer traffic for new vehicles at dealerships climbed only 0.4% last month compared to the same month in 2010, according to CNW Research.  That’s effectively flat traffic.

It should be noted, however, that consumer traffic at dealerships for used cars was up 10.7% last month compared to August 2010.  The implication of this dramatic increase is that consumer demand for used cars remains healthy — less so for new cars.

And that brings us back to new-vehicle incentives. As the Japanese manufacturers replenish inventory after the March earthquake froze production, the car makers will spark an incentive battle as domestics attempt to keep up, Kelly Blue Book says. But will incentives be enough to get new Japanese car sale performance back at the top? Japanese brands are typically strong performers, consistently maintaining close to 40%  of all U.S. sales prior to the quake. That waned after the natural disaster, although sales have rebounded partially since.

“It’s been kind of tough,” said Carl Reed of McGrath City Honda of Chicago. “But now [inventory is] starting to pick up.”

Long-awaited Japanese redesigns to 2012 models of the Toyota Camry, Honda CR-V, and Honda Civic are expected to arrive at dealerships later this year and sell big ― but they will be up against other models that are performing extremely well. The Honda Civic, for example, will sell against the all-new 2012 Ford Focus, as well as the new-for-2011 Hyundai Elantra and Chevrolet Cruze, which has been “cruising” as the best seller in its class for the past several months. Year-to-date, the Cruze only trails the Corolla by slightly more than 1,000 units. 

“While the earthquake in Japan halted sales recovery earlier this year, the anticipated push by the Japanese to recapture marketshare will likely help sales later this year,” said Alec Gutierrez, manager of vehicle valuation for Kelley Blue Book. “Since May, Japanese brands have given up considerable marketshare to both domestic and Korean manufacturers.”

While sales of Hyundais and Kias are also strong, neither OEM currently has enough inventory to support incentive programs that might compete with the Japanese brands. Both Hyundai and Kia have scarce, 19-day vehicle supplies available to consumers.

“Hyundai is a demand problem right now,” Reed said. “The vehicles are really hot, but we can’t get them.” 

But come fourth quarter, consumers in the market for new vehicles will likely find plenty of attractive deals.

Updated 9/12/11 4:08 p.m. ET