The automobile industry's annual year-end tradition, the holiday sales push, is in full swing.
But it's shaping up to be a stingier Christmas than usual. Despite rampant discounting throughout the year, the current end-of-year deals aren't as generous as in the past, or even as enticing as the deals were this summer.
And if car makers have their way, the current discounts are as good as they're going to get for a while.
With signs of a rebounding economy everywhere, auto makers are increasingly optimistic that they'll be able to raise prices next year and cut back on the big consumer discounts and financing deals that have been driving the market.
Whether car makers can succeed in raising prices long term remains to be seen. And there will almost surely be sweet deals on certain, poor-selling models or in hotly competitive segments, such as large pickup trucks.
But Detroit is pushing hard to boost prices and profits. General Motors Corp., for example, no longer is offering a nationwide zero-percent financing for 60 months on all its lines, as it has periodically done during the past two years.
Discounts being withheld
Instead of big consumer rebates or cut-rate financing, car makers are increasingly giving cash to dealers that they can share with customers if they wish. But unless customers demand these discounts, they aren't likely to get them. In contrast, the recent round of consumer rebates were advertised widely and buyers got them automatically.
Cash bonuses to dealers particularly are high on many 2003 models, and on many luxury nameplates.
Mercedes-Benz, Acura, Lexus, Infiniti, Jaguar and Volvo all have dealer cash discounts on 2003 models, with no consumer cash rebates available. GM's Cadillac division is offering dealers $6,000 in cash for every 2003 Seville or Deville that they sell, compared with $2,000 for the 2004 Deville and $3,000 for 2004 Seville.
That means dealers of these cars can be particularly aggressive in cutting prices to close a sale.
Want a hipper Caddy? Dealers have cash of $3,000 to $4,000 on various 2003 Escalade models. (Customers also get $1,500 rebates.)
To find out which auto makers are offering cash to their dealers, check Edmunds.com, a Web site specializing in automotive research.
Higher sticker prices
Detroit is trying to break free from a cycle of rising prices and rising consumer incentives.
GM, Ford Motor Co. and DaimlerChrysler AG's Chrysler Group raised sticker prices by $2,020 on average from January 2002 to September 2003, according to Edmunds. However, the average incentives rose $1,721 in that period. Bottom line: Big Three consumers were spending an average of $299 more, according to Edmunds.
Similar analysis on Japanese auto makers' prices showed a net price increase of $486 in that 21-month period. European car makers pushed prices up by $1,226, according to Edmunds.
Of course, auto makers have been hoping to pare back incentives for a while. But every time they tried, sales stalled and they were forced to return to discounting.
Now, GM executives, who launched the incentive war following the 9/11 attacks, are signaling they hope to raise prices next year.
"The good news is that we do feel better about the direction of the business and the direction of the economy," said Paul Ballew, GM's chief market analyst.
The challenge for GM in the near term is that inventories of unsold vehicles are quite high. GM had an 86-day supply of cars and trucks at dealerships at the end of November, significantly higher than the standard 60 days that auto makers strive for, according to Autodata Corp. statistics.
Ballew conceded that "inventory is beyond our target levels, but it's not unmanageable." While he declined to speculate on any midmonth incentives the auto maker might add, he said current inventories "are not at a level that's going to prompt us to do something drastic."
Japanese and European brands, meanwhile, generally have much smaller stocks of unsold vehicles, as sales of luxury brand vehicles have remained relatively strong. Toyota Motor Corp.'s Lexus division has just 26 days' supply of unsold vehicles on hand, according to Autodata. Bayerische Motoren Werke AG's U.S. inventories are at a lean 25 days' supply.
'Make us an offer'
For buyers, the trick now becomes to negotiate hard with the dealer. In December particularly, dealers are motivated to clear out inventory before the end of the year.
For instance, Northwestern Dodge on Detroit's now-famed Eight Mile Road has a sign out enticing consumers to "Make us an offer."
Andre Tadros, the dealership's sales manager, said he won't take a ridiculously low price, but admits he's more willing to negotiate than in the past.
Chrysler's Dodge division, he noted, "is putting our feet to the fire."