Will Bigger Incentives Bear Fruit this Labor Day for Auto Co's?

Includes: DDAIF, F, GM, HMC, NSANY, TM
by: Steven Towns

In today's Wall Street Journal, Jennifer Saranow and Gina Chon comment on how auto makers are resorting to incentives once again to sell cars in: The Return of 0% Financing.

Until the Fed's latest rate pause there had been seventeen-consecutive hikes that pushed the rate for new car loans to 7.6% in June, nearly 2.5% higher than two years ago. However, a slew of 0% financing deals has effectively pushed the rate down to a two year low at 5.34%.

As inventory rises and auto makers look to more aggressively make sales, incentives for car buyers are growing to include not only 0% financing but longer terms of up to 72 months for financing and even cash back on top of financing.

The average number of days it took to sell a car according to the most recent data by Power Information Network covering the first three weeks of August:

  • Chrysler (DCX) 90
  • General Motors (NYSE:GM) 84
  • Ford (NYSE:F) 83
  • Honda (NYSE:HMC) 37
  • Toyota (NYSE:TM) 26
  • Industry Average 64
  • Comment: Thanks to auto company struggles consumers stand to benefit from the incentive war unfolding this Labor Day holiday. While the U.S. Big-3 will be content with moving inventory we can now see even the most dominant player, Toyota, being drawn into the incentive game.

    Toyota has consistently reported record sales in the U.S. and despite a weak domestic Japanese market in which sales are on the decline, Toyota and most other Japan autos are boosting domestic production in order to meet strong demand in the U.S.

    Higher gas prices don't seem to be hurting sales volume for Japanese autos but in fact, sales are slowing even for Toyota in its truck segments resulting in the use of more incentives, and due to higher sales of smaller cars its profit margins have slipped slightly. Separately, concerns about Toyota quality given a surge in recalls has prompted management to consider slowing down its aggressive global expansion.