Auto Manufacturers Use Incentives to Attract Customers

John Birchard
Washington, D.C.
July 15, 2004

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In the jargon of the American auto industry, spiffs are required to move the tin.

Spiffs are customer incentives, cash discounts, low-or no-interest loans and other inducements to buy new vehicles. As for moving the tin, some auto dealers refer to their sales in that manner, moving vehicles off their showroom lots and into the possession of customers.

And one more definition: sticker price. That's the manufacturer's suggested retail price as posted by U.S. law on a sheet fastened by adhesive to the window of every new car or truck. Hence, the term sticker.

It's generally agreed that spiffs got their start in the 1970s. The associate publisher and editorial director of Automotive News, Peter Brown, says Chrysler, during one of its periodic crises, was the first to try the strategy.

"It worked for them," he said. "I mean, it was one of their many desperate things when they were in different desperate times. It does a couple of things: one is it makes the car cheaper and the other thing is it allows you to put that money toward a down payment."

Peter Brown says, by the 1990s, incentives were a nearly-normal way of selling cars and trucks in America. Then came the attacks of September 11, 2001 and a traumatized country where the economy slowed dramatically. General Motors, says Mr. Brown, had a stunningly simple idea to get business going again.

"They came up with zero percent financing across the entire [product] line," said Peter Brown. "And that was the big idea. And it was unbelievable what it did, because in October of 2001, in a recession, the month after September 11 was the highest month in U.S. [auto] sales history."

Three years later, General Motors is still the most aggressive automaker when it comes to spiffs. Jesse Toprak is Director of Pricing and Market Analysis for the online auto industry information source, Edmunds.com.

"June numbers, the latest numbers we have, show that General Motors is spending $4,312 per vehicle in incentives," he said.

And, since GM does it, then Ford and Chrysler are forced to follow, even as incentives eat up their already slim profits. While Japanese and European automakers are less inclined to discount their products, everyone does it to some degree.

The American car buying public is so accustomed to the practice by now, they refuse to buy without incentives unless the vehicle is so hot, so desirable they must have one at nearly any price. Jesse Toprak cites Toyota's gasoline-electric hybrid, the Prius, as a prime example.

"No incentives for that one. Actually, good luck getting one of those nowadays," he said. "There is usually a waiting list of six months to a year in most dealerships and most consumers have to pay over sticker for that vehicle."

No spiffs are needed to move that tin.