Plenty of car-buying incentives, but not much talk about them

To protect a brand's image, some deals aren't being advertised.
CBS MARKETWATCH
SAN FRANCISCO -- U.S. carmakers are so stuck in the quicksand of endless incentives, with their customers conditioned to expect the perk, that some 2004 models are being discounted even as they hit dealers' lots.
Chevrolet is offering a $3,000 rebate on its 2004 Cavalier, the Chrysler Sebring comes with a $2,000 rebate, and the Ford Escape carries a $1,500 rebate, according to Automotive News, a trade journal.
Although the Big Three domestic makers -- General Motors, Ford and DaimlerChrysler -- tend to dominate in offering incentives across their fleets, foreign carmakers are also adopting price-cutting measures.
"This market is merciless," said Paul Taylor, chief economist with the National Association of Automotive Dealers. "Everybody has to be competitive in this world of very rough-and-tumble competition."
Indeed, Kia Motors is offering $1,500 off or zero percent financing on its 2004 Optima, and the Mazda Tribute comes with a $1,500 rebate. But to protect models' credibility and brand image from any damage, some discounts aren't being advertised.
Seeming unpopular
"You really don't want to start offering big customer incentives right away, because it makes it look as if the vehicles aren't popular," said Art Spinella, president of CNW Marketing, an auto-industry research company in Bandon, Ore.
"It's a little earlier than usual for a new model year to be getting substantial incentives, but we're seeing a lot of them, especially of the unseen variety," Spinella said.
For instance, Mercedes-Benz is offering a $2,000 manufacturer-to-dealer incentive on its 2004 C-class wagon, and the Cadillac Seville is going to dealers at a $3,000 discount, according to Automotive News.
With 2004 models already being discounted, dealers are offering even better rebates on 2003s.
Carmakers have forced themselves into a vicious cycle.
"It's really very competitive to make sure that you get that share of whatever profits the industry can generate. The only way to do that is increase market share," Spinella said.
"The only way right now to increase market share is to incentivize cars to the point where people will buy a vehicle even though they may not necessarily need one right now," he said.
"Bragging rights" also come into play, said John Honiotes, vice president of dealer relations at Autobytel, a car-buying Web site. Companies with top sales can say they're No. 1, and customers may be more likely to buy from the perceived leader, he said.
"The customer says, 'Well, there must be something to this car.' It influences future purchases."
Do they work?
But just how effective are all the discounts in stimulating sales? The Big Three U.S. manufacturers spent a record amount on consumer incentives in August: $3,687 on average per car, up from $2,782 in August a year ago, according to Edmunds.com, a consumer automotive-information site.
Yet they saw their combined market share drop to 57.6 percent, the lowest since at least January 2002.
"When [market share] goes under 60 percent, that gives you a signal that domestics are in trouble," said Jesse Toprak, director of pricing and market analysis at Edmunds.com.
"This is especially significant because where you spent the most money on incentives, you have the least share."
In the United States, Japanese automakers spent $1,032 per car in August, less than one-third what domestic automakers spent, and that month Toyota Motor Corp. saw its U.S. market share surpass Chrysler's for the first time, Toprak said.
"This is another proof that incentives themselves do not sell cars."