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Carmakers Boost Incentives 6.4% in Effort to Pass Rivals

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Times Staff Writer

Cash rebates, low-interest loans and other new-car incentives reached an average $2,379 per vehicle in March, up 6.4% from a year ago, according to a study released Monday.

And although domestic automakers set the pace with various rebates and reduced lease rates averaging $3,250, European and Asian automakers also were forced to boost their bait to stay competitive.

Even companies whose products are in high demand, including Toyota Motor Corp. and BMW, are finding it necessary to offer incentives. “Customers just expect it. The incentive is part of the whole sales process now,” said Jesse Toprak, pricing and market analysis director at Edmunds.com, the Santa Monica-based Internet automotive information service that conducted the study.

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It shows that domestic brands’ incentives last month were up 8% from March 2003, while foreign brands’ incentives rose 2% to an average $1,132.

“It’s all about market share and capturing new buyers,” Toprak said.

The brands offering the biggest lures last month were General Motors Corp.’s Cadillac and Oldsmobile divisions, at $4,339 and $4,332 per vehicle, followed by Ford Motor Co.’s Lincoln at $4,094 and the Chrysler brand with $3,977.

All that might sound like good news for consumers, but dealers and market analysts say the cash-back deals, low interest rates and other discounts do little to lower the final cost of a new car, sport utility vehicle or truck. Edmunds’ study shows that the average new-vehicle sales price in March was $25,024 -- up 5.2% from $23,787 a year earlier.

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A key reason, dealers say, is that consumers use the incentives to add options and other features that boost the total cost of their car.

And as financing terms get more liberal, with six- and seven-year loans gaining a foothold in the market, many buyers are using the new incentives to help trade in older cars with big loan balances to buy something new.

“People come in to buy a new car and they are so upside-down on their old one, they owe more than it’s worth, that they need the incentives just to get even,” said Fritz Hitchcock, chairman of Hitchcock Automotive Resources. The City of Industry-based holding company owns six new-car dealerships including Ford, Toyota, BMW and Volkswagen franchises.

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“Incentives appear to be here to stay,” Hitchcock said. “I just don’t see how [manufacturers] can wean themselves off them.”

Still, not every new car or truck needs an assist to get out of the showroom. “If it’s hot, it moves,” Hitchcock said.

BMW’s sporty Mini sedan is just about the hottest thing around, with virtually no incentives offered, according to the Edmunds study.

Toyota’s youth brand, Scion -- including the xB with its refrigerator-box styling -- also is pretty hot. The company spends an average of just $64 per car on Scion incentives. In fact, Toyota was the only major car company that dramatically cut its incentives in the last year, by 41.7%, to $568 per vehicle in March.

By comparison, Chrysler Group’s incentive spending rose 21.7% in the last year to $3,603, GM’s climbed 1.4% to $3,394 and Ford spent $2,807, up 8.8%.

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Incentives

Domestic automakers offer more cash-back deals, low interest rates and other incentives than their competition. But foreign car companies are increasing their incentives to stay competitive.

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Average incentives per vehicle sold

March March Brand 2003 2004

Domestic $3,009 $3,250 South Korean 1,348 1,889 European 1,612 1,749 Japanese 951 899

Top 5 companies Chrysler $2,960 $3,603 General Motors 3,348 3,394 Mitsubishi 1,707 2,843 Ford 2,581 2,807 Kia Motors 1,454 2,227

Bottom 5 companies Nissan $921 $1,308 BMW 1,599 1,201 Toyota 974 568 Honda 450 508 Porsche 332 229

Source: Edmunds.com

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