Bad incentives?

Edmunds.com is reporting that incentives pushed by automakers may be doing more to hurt than help the auto sector recover from the dramatic drop in sales.

GM reported sales decline of more than 35% in April, while Ford sales fell about 32% in the month and Toyota sales fell almost 42%.

In its report released Friday (May 1), Edmunds.com estimated that the average auto manufacturer incentive in the U.S. was $3,031 per vehicle sold in April 2009, down $134, or 4.2%, from March 2009, and up $680, or 28.9%, from April 2008.

“This month’s sales reports may prove that there is a point of diminishing returns for incentives spending,” Jesse Toprak, executive director of industry analysis for Edmunds.com. “For some automakers, this month’s high incentives diluted brand image and hurt residual values while delivering only a negligible lift in sales.”

Combined incentives spending for domestic manufacturers averaged $3,959 per vehicle sold in April 2009, down from $4,465 in March 2009. From March 2009 to April 2009, European automakers increased incentives spending by $26 to $3,410 per vehicle sold; Japanese automakers increased incentives spending by $132 to $1,740 per vehicle sold; and Korean automakers increased incentives spending by $87 to $3,591 per vehicle sold.

In April 2009, the industry’s aggregate incentive spending is estimated to have totaled approximately $2.6 billion, down 3.8 percent from March 2009, according to Edmunds.com.

“Despite earning little return in the way of higher sales on their incentive investments, automakers seem to be playing a game of chicken — all are waiting for the other guy to drop back first,” noted Edmunds’ AutoObserver.com Senior Editor Michelle Krebs. "Automakers appear to fear the bottom falling out completely if they back down on incentives.”

Comparing all brands, in April Scion spent the least, $160 per vehicle sold, followed by Subaru at $884. At the other end of the spectrum, Cadillac spent the most, $5,675 per vehicle sold, followed by Infiniti at $5,504. Relative to their vehicle prices, Kia and Mercury spent the most, 20.9% and 16.2% of sticker price, respectively; while Scion spent 0.9 and Lexus spent 3.3%

Average incentives per vehicle
• Chrysler Group (Chrysler, Dodge, Jeep)
April 2009: $4,288
April 2008: $3,795

• Ford (Ford, Lincoln, Mercury, Volvo)
April 2009: $3,636
April 2008: $2,989

• General Motors (Buick, Cadillac, Chevrolet, GMC, Hummer, Pontiac, Saab, Saturn)
April 2009: $4,063
April 2008: $3,132

• Honda (Acura, Honda)
April 2009: $1,439
April 2008: $1,405

• Hyundai (Hyundai, Kia)
April 2009: $3,591
April 2008: $2,156

• Nissan (Infiniti, Nissan)
April 2009: $2,779
April 2008: $1,796

• Toyota (Lexus, Scion, Toyota)
April 2009: $1,648
April 2008: $840

• Industry Average
April 2009: $3,031
April 2008: $2,351