Consumers Finding Fewer Incentives At New Car Showrooms

Despite the fragile state of the economic recovery, car sales appear to be strong, with both domestic and foreign automakers reporting a healthy bottom line.

Consumers stunned by fast-rising gasoline prices are snapping up four-cylinder models, helping to drive sales. And because consumers are so eager to buy, car dealers and manufacturers don't have to offer the incentives they did at the height of the recession.

Lowest since 2005

This is the lowest incentive spending by the auto industry since Edmunds.com reported average TCI of $1,962 in October 2005.

"This is the clearest indication yet that automakers are gearing up for inventory shortages," said Jessica Caldwell, director of industry analysis for Edmunds.com. "Demand for new cars has been growing as economic recovery has strengthened, but now the industry may experience a hiccup if consumers decide to wait for the next deal to come around, which may not be until the autumn."

A new commentary by Edmunds.com CEO Jeremy Anwyl reveals that consumer interest already started to fade throughout the month of April. The seasonally adjusted annual rate (SAAR) of car sales was as high as 14.7 million units in the first few days of the month. By the last week of April, the SAAR had fallen to 13 million.

"April sales usually start slow and then jump after April 15, which may have something to do tax-filing day," said Anwyl. "This year we have seen the opposite pattern."

Still, a strong month

Even with the late April drop off, it's shaping up as a good month for car makers. General Motors reported this week that its U.S. car and truck sales rose 26 percent in April. Ironically, higher gas prices are being credited with the sales surge, as more consumers look for smaller cars that get better mileage.

GM said it sold more than 25,000 Chevrolet Cruze is April, its best month since the compact was introduced last October.

Honda reports its U.S. sales rose nearly 10 percent in April, again on demand for the company's fuel efficient cars. Sales of the subcompact Honda Fit were up 73 percent over April a year ago, the car maker said.

So, when it comes to new car incentives, dealers and manufacturers obviously think that, in the era of $4 a gallon gasoline, a car with higher gas mileage is plenty incentive enough.