Carmakers increase incentives in order to boost their sales

Article by Christian A., on February 28, 2011

All that hard-won production and pricing discipline the auto industry has acquired in 2010 is in danger of “going out the window” now that incentives are ratcheting up. In January 2011, General Motors increased incentives and Hyundai, Nissan, Honda and Toyota followed in February 2011.

The danger: a return to the times when carmakers overbuilt and then had to bribe customers to buy. CEO of Hyundai Motor America John Krafcik calls it "a price war," while others merely see just the usual scuffling in a rough-and-tumble business.

Group 1 Automotive CEO Earl Hesterberg said, "You've got these powerful global companies and brands who are feeling their oats and have discovered they've survived the downturn."

Stever Girsky, vice chairman of General Motors, says his company has no reason to go overboard on incentives because it does not have enough production capacity.

At least, for now, most agree that the increased incentives don't signal a return to the over-produce-and-discount "push" pattern of the last decade. Inventories are scant and manufacturers are too pressured to increase profits, but production is picking up.

Forecaster IHS Automotive says manufacturers have just boosted plans for second-quarter North American production. In January 2011, IHS predicted output of 3.35 million light vehicles, up 8.5 percent from a year earlier and IHS just raised its forecast by 100,000 units, to 3.44 million. [via autonews - sub. required]

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