||Disaster Ends Talk of Auto Price War
If you were expecting a price war in the first part of the year, forget about it. Transaction prices will be higher for several months, analysts now predict.
Heavy discounting by General Motors and Toyota Motor Corp. in January and February had prompted talk about a budding price war. But that will evaporate due in part -- but not solely -- to Japan's unfolding disaster, which has disrupted production schedules in Japan and elsewhere, analysts say.
"I'd expect to see incentives pull back," said Jeff Schuster, head auto forecaster for J.D. Power and Associates. "I imagine any major programs that are still around will end."
Japanese automakers will most aggressively limit discounts, but the Detroit 3 and European automakers are likely to trim incentives, too, analysts say.
Damage from the March 11 earthquake and tsunami at least temporarily knocked out production of 17 of the top 20 Japan-made nameplates sold in the United States, and idled GM and Peugeot factories in the United States and Europe.
Morgan Stanley analyst Adam Jonas wrote in a research note: "What's the motivation to start a price war when the industry is not in a position to supply very many more cars?"
Jonas said the Japan supply disruption was only one of several factors that will support firmer pricing for GM in coming months. Others:
-- Used-car prices are near record levels, which supports higher residuals and stronger leasing activity even without subvention.
-- Auto loan delinquencies and losses are down. And with consumers putting more money down, dealers don't have to tap incentives to help buyers qualify for loans.
-- GM's U.S. inventory stood at 60 days as of March 1, the lowest March 1 level in nine years.
GM, which has taken the brunt of the recent scrutiny over higher incentives, pulled back before the Japan quake by ending a $1,000 loyalty program and a lease pull-ahead offer.
James Capestany, general sales manager at Walker's Renton Subaru in Renton, Wash., said he thinks pricing "is probably going to go up because of the uncertainty."
"We'll see some dealers pulling in their reins" when it comes to aggressively cutting deals. "We may very well, too, if it looks like we're not going to get product."
He said last week that his deliveries hadn't been disrupted, but many customers are aware of production problems stemming from the Japan disaster and haven't been bargaining quite as hard.
Fred Blackwell, a sales manager at Sandy Springs Ford in Atlanta, says prices of used vehicles at auctions are "ridiculous" and above values listed in guidebooks. He attributes the buying frenzy to the tight supply of used vehicles, not the crisis in Japan.
"There isn't enough product to satisfy all the appetites," he says. "CarMax has to have them, franchise stores have to have them, independents need them -- and we're eating out of the same trough."
(Source: Automotive News, 03/28/11)
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