Is Auto Industry Falling Back Into Bad Habits?

ANN ARBOR (WWJ) - Hyundai North America CEO John Krafcik is raising some concerns about rising incentives.

"As an industry, I think it's time for us to pause and be careful, because we don't want to slip back into some of the old habits that helped create some of the overcapacity and other issues that we had just a few years ago."

Krafcik talking to WWJ AutoBeat Reporter Jeff Gilbert, as Chevrolet announced new deals on leftover 2012 models and a new program that allows customers to change their minds and return vehicles.

INTERVIEW: Hyundai North America CEO John Krafcik

Chrysler, meanwhile, is offering no payments for ninety days on 2012 models. Ford is offering more traditional cash back incentives on 2012's, as part of what they call a "Summer BBQ."

The car companies, and analysts say these are traditional style programs, meant to clear out older models to make way for new 2013 vehicles. But Krafcik is concerned that there is also an effort to bring in customers who are concerned about the economy.

"We've got a lot of manufacturers that are absolutely, clearly trying to hit numbers now, as they look at where they want to be by the end of the year," he said.

While June sales were stronger than expected, Krafcik says there are economic issues playing on consumer's minds as we head into the second half of the year.

"Employment isn't where it needs to be," he said. "We still haven't seen housing where it needs to be. There is some general concern about what's happening in Europe. I think all that is filtering down to the consumer."

Krafcik has sounded the alarm about incentives before, and says Hyundai is trying to back off on deals. He said they don't have to follow other auto companies because their inventories remain fairly tight.

The Hyundai North America CEO spoke at a local event aimed at showing several new vehicles to the media.

Edmunds.com says the incentives in June—as averaged over the entire industry-- fell from both May and from June of 2011. But, GM Honda and Nissan were up by double digits.

On average, the industry spent $2187 per vehicle on incentives in June.

At this point, there are no definitive signs that car companies are going back to 2008 and 2009, where out of control production lead to increased inventories. That prompted money-losing incentives.

Auto executives promise that won't happen again. Krafcik says he hopes that's true.

"This summer is a really important turning point for the industry," he said. "I think if we see a lot of heavy discounting as we get into August, you can say the industry hasn't learned the lesson."

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