Incentives on Autos Wither as Demand Rises, Supply Falls

Vehicle inventories are tight, especially for hot-selling fuel-efficient models, and prices are climbing, reported The Detroit News.

Two main reasons: volatility in gas prices and continuing fallout from the March 11 earthquake and tsunami in Japan, which has forced some automakers to cut production.

"It's going to be a collision this summer between deal-seekers and higher prices," said Jeremy Anwyl, CEO of Edmunds.com, a Santa Monica, Calif.-based automotive research website.

Discounts and sales incentives last month were at their lowest in the United States in more than five years — about $2,320 per vehicle, a $370 reduction over April 2010, according to analyst reports. Some dealers are holding off on yearly sales events until inventories improve.

With demand for cars and trucks continuing to climb, auto retailers are feeling little pressure to heap on discounts typical of the summer to make room for newer inventory. On top of that, automakers are paying more for raw materials, passing the cost on to buyers in price increases.

Buyers also will have fewer vehicles from which to pick, and may have to compromise on color and other features.

In some instances, they are paying hundreds of dollars more for top-selling fuel-efficient models than they were three months ago.

According to Edmunds.com, the average price for a Honda Civic has jumped $1,615 from February to May; on the Toyota Corolla, prices were up $2,147 over the same period.

"The deals aren't going to be as favorable as in years past," said Jeff Schuster, director of global forecasting at California-based J.D. Power and Associates. "And they're going to be more difficult to find."

South Korean automakers Hyundai Motor Co. and Kia Motors Corp. are having trouble keeping cars in stock, due the run-up in gas prices and high demand for their vehicles, said Doug Fox, owner of Ann Arbor Automotive, a dealer of Hyundai, Acura, Nissan and other foreign brands.

General Motors Co. is tight on the Chevrolet Cruze compact and Chevy Equinox and GMC Terrain crossovers.

Ford Motor Co. is running low on hot-selling cars such as the Fiesta, Focus and Explorer.

"We have a very fresh lineup, a lot of hot-selling products," said Ford sales analyst George Pipas. "A lot of summer dealers are driven by excess inventory. Right now, there is not a catalyst for a summer blowout sale."

Ford increased prices twice this year — the latest, in April, averaged $117 per vehicle — and reduced incentive spending last month by $580 per vehicle compared to April 2010, according to research firm AutoData Corp.

GM and Chrysler Group LLC also have pulled back on discounts seeking to improve profitability, and raised prices on certain vehicles to cover higher commodity costs — plans put in motion independent of the disasters in Japan, company officials say.

Chrysler pared its discounts by an average $858 last month compared to April 2010, according to AutoData Corp. GM's average incentives were down $272 over April last year, but its discount spending — an average $3,068 per vehicle — is the highest of the major automakers.

The Japanese automakers, in particular, are suffering from a scarcity of certain models due to parts shortages in Japan, and their dealers are boosting prices — some say too steeply. But the perception stock could soon run out also has kept some car buyers away from Japanese showrooms, and inventories aren't being depleted as fast as some expected, said Anwyl.

"Consumers are reading headlines and assuming they don't have any cars," he added.

The run-up in prices is likely to be short-lived, Anwyl said. Japanese production levels are recovering, and dealers will realize soon they have enough stock.

Toyota Motor Corp., Japan's largest automaker, said last week it would tack new incentives onto core U.S. models, including the Camry, Corolla and Avalon. Toyota officials said production at its North American plants is rebounding faster than expected.

Nissan Motor Co. will have its annual spring sales event this year, but has pushed it back, to June, when it will have had time to replenish inventories, said Fox, of Ann Arbor Automotive.

Nor have deals completely vanished. For bargain-hunters, dealers are offering cash rebates and low-interest financing. But they're generally on fewer models, and less sought after ones.

"We still feel we need to be aggressive in the marketplace," said Richard Genthe, owner of Dick Genthe Chevrolet in Southgate.

The dealership is offering $1,500 in consumer cash on the 2011 Aveo, which Chevy is retiring from the lineup, and $2,500 on the 2011 Impala, according to its website.