Edmunds.com Reports True Cost of Incentives: Effect of Incentives Wearing Thin

SANTA MONICA, Calif., Dec. 2, 2004 -- Edmunds.com (http://www.edmunds.com/), the premier online resource for automotive information, reported today that the average manufacturer automotive incentive in the United States was $2,395 per vehicle sold in November 2004, up $9, or 0.4%, from November 2003, and down $260, or 9.8%, from October 2004.

Edmunds.com's monthly True Cost of Incentives(SM) (TCI(SM)) report takes into account all of the manufacturers' various United States incentives programs, including subvented interest rates and lease programs as well as cash rebates to consumers and dealers. To ensure the greatest possible accuracy, Edmunds.com bases its calculations on sales volume, including the mix of vehicle makes and models for each month, as well as on the proportion of vehicles for which each type of incentive was used.

Overall, combined incentives spending for domestic Chrysler, Ford and General Motors nameplates averaged $3,379 per vehicle sold in November, down $283 from October 2004. Chrysler lowered incentives spending in November by $215 to $3,429 per vehicle sold while increasing market share by 0.9% to 13.8%. Ford decreased incentives spending by $270 to an average of $3,141 per vehicle sold, while its market share fell by 0.4% to 18.0%. GM lowered incentives spending in November by $339 to $3,519 while its market share dropped 0.7% to 24.6% -- a historical low.

"The kind of incentives that helped to jump start the automotive industry from its lull three years ago has lost its effectiveness to create new potential buyers. The domestic automakers have made the most of incentives in recent years, and are beginning to accept that consumers, who have been bombarded with messages of cash back and special financing, are becoming relatively insensitive to those offers," stated Dr. Jane Liu, Vice President of Data Analysis for Edmunds.com. "It's supply and demand: the continued success of models like the Chrysler 300 and the Dodge Magnum, and brands like Mini and Scion, prove that consumers will enthusiastically purchase an exciting, high-quality product even in the absence of any incentives. GM and Ford, aware of the need to reduce the supply of less popular models, recently announced that they will be cutting production."

In November 2004, Korean automakers reduced incentives spending by $357 to average $1,828 per vehicle sold, European automakers reduced incentives spending by $565 to average $1,765 per vehicle sold and Japanese automakers reduced incentives spending by $41 to average $888 per vehicle sold in October.

From October to November, Korean and European manufacturers grew their market share from 4.15% to 4.44% and 7.25% to 7.53%, respectively. At the same time, Japanese and domestic manufacturers both lost market share, with the Japanese dropping from 31.9% to 31.5% and the domestics falling from 56.51% to 56.3%.

"The decline in average TCI from October to November reflects a seasonal trend, as this time of year many new model year vehicles are being sold with relatively low incentives," explained Dr. Liu. "Gains in market share for

Koreans and Europeans can partially be attributed to strong sales of new and redesigned vehicles like the Hyundai Tucson and the Volvo S40."

Comparing all brands, in November Mini spent virtually nothing on incentives and Scion spent only $83, while Lexus spent only $164 per vehicle sold. At the other end of the spectrum, Lincoln was the biggest spender at $4,949 in November, followed by Jaguar at $4,872 and Cadillac at $4,184 per vehicle sold.

Among vehicle segments, in November large SUVs continued to offer the highest average incentives, $4,364 per vehicle sold. Other segments with high incentives were large cars at $3,004 and large trucks at $2,856 per vehicle sold. Compact cars had the lowest average incentives at $1,492, followed by luxury sports cars at $1,653 and luxury SUVs at $1,782 per vehicle sold.

Midsize cars have lost the most market share since November 2003, decreasing from 16.4% to 14.6%, while large cars have gained the most market share during that period, up from 4.2% to 6.1% of the new vehicle market.

About Edmunds.com True Cost of Incentives(SM) (TCI(SM))

Edmunds.com's TCI(SM) is a comprehensive monthly report that measures automobile manufacturers' cost of incentives on vehicles sold in the United States. These costs are reported on a per vehicle basis for the industry as a whole, for each manufacturer, for each make sold by each manufacturer and for each model of each make. TCI covers all aspects of manufacturers' various incentives programs (except volume and similar bonus programs), including dealer cash, manufacturer rebates and consumer savings from subvented APR and lease programs (including subvented lease residual values used in manufacturer leasing programs). Data for the industry, the manufacturers and the makes are derived using weighted averages and are based on actual monthly sales and financing activity.