I have read a few articles about the imminent incentive war coming in the next few months. The argument is simple; Toyota and Honda will get inventory back from the return of full production and attempt to recoup some of the market share they lost during the past few months. Domestic manufacturers, reluctant to give up share, will counter with their own round of incentives until our market reaches a crescendo and an all out price war ensues.
I am of the opinion that we won’t get to that point. There are a few factors that need to be considered by manufacturers before they intend on destroying the market balance we have enjoyed during the majority of the year. Besides the recent misstep by domestics in their demand forecasts for trucks we have witnessed a balance of supply in demand in the new market. This is a new and welcome phenomena compared to the production based push strategies during our new vehicle sales heydays during the late 1990s and early 2000s. Manufacturers have abandoned the misinterpreted Boston Consulting Group mantra of market share at any cost, you know the one with the “Cash Cows” and “Stars”, but instead are relying on strategies that actually create profitability. One factor within this strategy is to keep incentives reasonable.
Autodata proves that manufacturers are following this strategy. Domestic manufacturers had the opportunity in some cases to steal more sales from Toyota, Lexus and Honda if they would have increased incentives, but instead they took market share while also lowering incentive costs. I doubt that domestic manufacturers will go back to old bad habits especially when GM and Chrysler’s bankruptcy still seems like yesterday.
Toyota and Honda have an opportunity to drive sales by merely pushing incentives up to the levels witnessed during the beginning of the year, which will look very attractive compared to the past few months. This is especially evident on the still in high demand small car segments. Toyota and Honda can start bringing in wary consumers that have been waiting for inventory, and also waiting for deals to coax them into the showroom. I think Toyota and Honda need to get creative on their programs, not just spend more; I assume consumers are weary about hearing about the same old deals. Low interest rates continue to be around and cash is definitely not a driver to stimulate demand. Toyota and Honda need to come up with a plan like GM’s Employee Price Program after 9-11 that not only adds sales but improves demand as well. Many import consumers have been waiting for inventory now is the time to come up with programs to bring them in.
Demand is also on the manufacturer’s side. Demand for new models has taken a hit with consumer confidence, but demand for overall vehicles is still strong as used vehicle demand remains strong. With used prices so high, supported in part by the high new vehicle prices (low incentives), consumers will be drawn to the new market when the deals start to hit. We are witnessing a shift from new back to used following the wave of uncertainty in our economy, but consumers surely will be attracted to the new market as the prices between new and used options get closer.
The battle should be short-lived as consumers realize that incentives are going to reach a stable point. The deals no doubt will be out there but don’t expect blowout prices and incentive programs that bring back memories of our 17 million market.