February marked the fourth month in a row of an increasingly heated incentive skirmish currently being fought by luxury automakers in the U.S.

Autodata data shows that beginning back in November, average luxury incentive spending across all brands surpassed the $3,900 mark, up 16.2% over the previous year.  Escalating even higher in December, incentive spending grew to almost $4,000 per vehicle, up a bloated 18.7% year-over-year. 

January-February average incentive spending leveled off a bit compared to the November-December time period, but the period’s average of just over $3,500 was still 6% higher than in 2011.

For comparative purposes, mainstream average incentive offerings fell for the third straight month in February to $2,360, down -4.6% compared to last year.

Throughout all of 2011, the only period to see an uptick in mainstream incentive spending was November, where spiffs were up a modest 1% on an annual basis.  Sure, multiple natural disasters last year provided mainstream OEMs an opportunity to pull back on incentive spending, but the downward trend in spending for non-luxury brands had been in effect since the first quarter of 2011.
Turning back to luxury brands, over the past four months Infiniti ($5,140), Jaguar ($4,740), Lincoln ($4,560), Mercedes-Benz ($4,450), and BMW ($4,145) have spent the most generously on incentives.   

Why?  In part it’s because luxury brands are aggressively trying to maintain market share grabbed last year when Lexus was back on its heels.  The perennial luxury crown champ was dethroned by BMW last year, and it appears the Bavarian brand won’t easily give up its newly won position of sales preeminence.  For February, BMW and Mercedes-Benz – last year’s luxury sales runner-up – continued to edge out Lexus by capturing 2.3% and 1.7% of the new market respectively.  It’s no coincidence that over the past four months incentive spending for each brand has increased by 18.5% and 32.8% respectively. 

Finishing third last month, Lexus sold over just over 16,600 units to capture 1.5% of the new luxury market, up 3,000 units year-over-year.  The wounded luxury brand continues to scramble in an effort to reclaim its evacuated position atop the luxury heap, and to help grease the skids they have raised their level of incentive spending by 42.0% over the past four months. 

As we touched on in recent editions of “Guidelines”, GM’s struggling luxury brand Cadillac can’t seem to break out of their five month sales rut.  Cadillac is the only luxury brand that hasn’t pushed up incentive spending, and in fact, they’ve actually cut things back by an average of nearly -19% over the last four months (again, on an annual basis). Unfortuantely this translated into January-February total sales that were off by -29% and -27% respectively from the prior year. 

Since this time last year, Cadillac’s total market share has dropped from 1.6%, to just 1%.  Cadillac’s aged lineup will require more aggressive incentive spending if the brand wants to prevent market share from eroding further.  The fresh faces of the upcoming ATS and XTS can’t come soon enough to help revive sales for the struggling brand.  We expect that luxury brands will continue to try and preserve the share won last year, and as result we foresee average incentive spending remaining at elevated levels near-term.  On the used vehicle side, above average incentive spending will apply downward pressure to late model luxury models, and Used Car Guide analysts have already made aggressive adjustments to many luxury used vehicle values due in part to the upward trend in incentive spending.