Car buyers are now getting treated even better than employees.
In an effort to clear out their remaining inventory before new models arrive in the fall, a number of car dealerships have started adding their own discounts this month on top of the existing employee discounts offered by Detroit’s Big Three.
The employee prices average about $3,000 off list prices, according to Edmunds.com, and the new extra discounts can take another $500 to $2,000 or more off some models.
The biggest dealer discounts are showing up on trucks and sport-utility vehicles, and in highly competitive markets such as Chicago, Denver, Houston and Miami.
Among the models most likely to be discounted further by dealers are those that have the steepest manufacturer discounts, such as the Cadillac Escalade, GMC Yukon XL, Ford Excursion and Dodge Ram, according to Michael Chung, pricing analyst for Edmunds.com.
The moves come as the impact of the employee-pricing discounts from Detroit’s Big Three appears to be waning. Industry sales were up only about 4 percent in August from a year earlier, compared with a 16 percent year-over-year jump in July – the industry’s highest-sales July ever – according to the National Automobile Dealers Association.
General Motors Corp. kicked off the employee-pricing trend in June when it started offering all consumers discounts that previously were reserved for its staff, in order to reignite sluggish sales. Ford Motor Co. and DaimlerChrysler AG’s Chrysler unit quickly followed suit.
While summer and fall clearance sales have long been a widespread practice in the industry, dealers – including a handful in Colorado – are adding their highest discounts in about four years to lure buyers. The steep incentives are needed to move the remaining inventory.
This month, dealers nationwide will add discounts of about $1,500 on average to new vehicles on top of automaker discounts.
As the employee discounts lose impact in a competitive market, “dealers wind up having to go sweeten the pie in order to get people to buy,” said Art Spinella, president of auto-industry tracker CNW Marketing Research Inc. of Bandon, Ore.
Higher gas prices caused by Hurricane Katrina are expected to further dampen industry sales this month.
“I’m hearing from a lot of dealers that they can’t afford to discount much more,” said Tim Jackson, president of the Colorado Automobile Dealers Association. “And (some say) there’s not enough 2005 inventory left to require a lot more discounting.”
At Luby Chevrolet in Lakewood, the employee-pricing incentive has left the dealership with a 5 percent profit margin, said general manager Gary Hinkle.
“If I’m only making $600 or $800 on a car, I honestly don’t want to be selling with (additional) discounts,” he said.
Even so, Hinkle said he wouldn’t rule out offering an additional dealer discount on some models.
Automakers say the discounts aren’t widespread, but dealers have the right to offer them.
“If a dealer wants to offer additional incentives, he’s certainly free to do so,” said Chrysler spokesman Kevin McCormick.
Some analysts and dealers say the additional discounts could erode the value of automaker deals and force them to continue upping the ante on their price reductions, further weakening profitability.
Last week, GM said it planned to end its pricing program Sept. 30 and raise prices, although it has lowered prices on several 2006 models. Ford and Chrysler, meanwhile, plan to end their programs Oct. 3.
The dealer discounts create “a slippery slope that could change consumer expectations to the point that consumers expect an ever-greater discount on top of an already-great promotion,” says Chris Denove, a partner at J.D. Power & Associates.
Analysts expect to see more dealers make concessions as the end of the employee-pricing programs nears.
Better deals can generally be found on vehicles with sluggish sales or those that haven’t been redesigned lately. But with inventories picked over, dealers offering discounts often don’t have any vehicles with popular options, such as DVD players, or popular colors and trims left.
Staff writer Steve Raabe contributed to this report.
