April Auto Sales: U.S. Car Makers Take It Slow and Steady -- and That's a Good Thing

Last Updated Apr 26, 2010 11:30 AM EDT

The good news from an auto industry perspective this year is that manufacturers seem to be keeping a lid, relatively speaking, on both discounts and production.

Forecasters said U.S. auto sales in April were better than the year-ago month by just over 20 percent. In normal times, that would be a giant improvement, but auto sales are in such a deep hole that the April result is more in the nature of slow but steady recovery. U.S. auto sales fell 34 percent in the year-ago month, according to the Automotive News Data Center.

Slow but steady is better in the long run than an overnight sensation, which could only be achieved through deeper discounting.

In the recent past -- say, before last year -- U.S. automakers rarely resisted the temptation to cut prices to stimulate demand. Then they would produce too many cars and trucks to keep up with the artificially induced demand.

When demand slackened, the cycle would repeat. Too much auto production and too-deep discounts became a death spiral for Chrysler and General Motors, which went into and out of bankruptcy last year.

This year, according to Edmunds.com, it's Toyota (TM), Honda (HMC) and Nissan (NSANF.PK) whose incentives are up from a year ago, while the domestic manufacturers are all down from a year ago (although they're still higher than the Japanese brands.) At the same time, Ford, Chrysler and GM all closed plants and cut back on production last year.

Jeff Schuster, executive director of global forecasting at J.D. Power and Associates, said despite Toyota and others continuing their incentive programs another month at the beginning of April, average incentives in April were $2,800, down from $3,400 a year ago.

He said the average incentive level for the industry was down $200 per vehicle from March, "which suggests that the likelihood of an outright incentive war is now lower."

That discipline on the part of the car companies makes things a little pricier for consumers, but it should contribute to more sustainable profits for the auto industry.

Chart: J.D. Power and Associates