Ford’s new promotion may not be good for everyone – CNBC

Posted: Monday, November 02, 2015

RBC Capital’s Joe Spak, for one, sounded a note of caution in a research note, writing: “What happens if competitors see what Ford is doing works? It’s a slippery slope down to the old view that as volume stalls, incentives rise.”


So far, General Motors, Toyota and Chrysler, have not indicated if they’ll match Ford’s aggressive promotions. But Schuster said he wouldn’t be surprised if they eventually respond with sweeter deals of their own.


“I suspect GM and Chrysler have programs ready to go,” he said. “They will wait and see how consumers respond and if this program is a hit, I don’t expect to see GM and FCA stand by and just watch Ford grab market share.”


Having said that, Schuster pointed out the domestic automakers are far from repeating the mistakes they made 10 years ago, when they pushed bigger and bigger incentives in order to generate sales. Those moves ultimately killed the limited profitability the Big 3 generated in the U.S. between 2004 and 2006.


Back then incentives, as a percentage of the average transaction price (what customers pay at dealership), were running as high as 14 to 15 percent. In October, TrueCar said the average incentive of $3,104 is just 9.5 percent of the average price paid for a new vehicle.


The incentive program could spark stronger sales in November and December. For the year, auto sales in the U.S. are running at close to an all-time high, with the 2015 total expected to be 17.3 million or 17.4 million vehicles.


Questions? Comments? BehindTheWheel@cnbc.com.


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