As the Japanese auto industry looks to increase production at North American factories, Toyota and Nissan have prepared for a major sales push, returning to major factory-to-dealer incentives. Cash, interest rate and lease incentives will apply to the majority of vehicles Toyota and Nissan sell in the U.S., reports Automotive News. The incentive plans have come on the tails of low sales numbers in early May, largely due to Japan’s 9.0 earthquake in March.
Supply chain back at full steam, cars must move
Both Toyota and Nissan expect to return to full production capacity in North America before May is over, which means there will be inventory to move. Incentive spending is the mechanism through which an overstock will theoretically be avoided. Nissan expects its Japanese factories to reach top production in June, which will only increase what the company believes is the need for heightened factory-to-dealer incentives.
Nissan Division Manager Al Castignetti is optimistic about the plan. By Memorial Day, he envisions tent sales on Altima and Maxima cars that will feature the best lease deals the automaker has offered.
The dog days of May
Compared with May sales in 2010, Toyota and Honda sales have fallen on hard times this May. Toyota sales have dropped by 56 percent (Lexus by 45 percent). Honda sales are down 41 percent overall, with the Acura division showing a 46 percent drop-off. Nissan and Infiniti are only down 12 percent. Hyundai is one of the few Asian automakers to up its May sales numbers, by 37 percent.
J.D. Power and Associates forecaster Jeff Schuster blames Japan’s May sales slumps on a combination of higher gas prices, lower rebates and shortages caused by the Japanese earthquake.
Incentives declined from February to March in 2011
According to Edmunds.com, the decline in dealer incentives has been occurring for a few months, even in the U.S. The average manufacturer incentive in the U.S. was $2,346 per new car sold in March 2011, which was down $220 (8.6 percent) from February 2011.
That drop in incentives was significant, noted Edmunds analyst Ivan Drury.
“These latest numbers show by far the biggest February-to-March incentives decline since Edmunds.com started tracking in 2002,” Drury said. “The decline is mostly likely a result of a 26 percent month-over-month sales jump in subcompact and compact cars which typically have a much lower level of incentives compared to large trucks and SUVs.”
Will increased incentives hurt automakers again?
In a report entitled “The Effect of Customer Rebates and Retailer Incentives on Manufacturer Profitability and Sales, ” a team of researchers presented a statistical analysis that suggested that fixed production and labor costs for Detroit’s Big Three (GM, Ford, Chrysler) are the same whether they produced as many cars as possible or stood idle part of the time. The Big Three ended up producing more than their market share justified, which created the overstock that led to mass incentives. These incentives pumped up sales, often at a loss.