Do Customer Incentives Increase Profitability?

Last Updated Aug 20, 2007 5:31 PM EDT

With heavy competition from global manufacturers in the automotive industry, companies are scrambling to increase sales by offering incentives. According to Jesse Toprak, executive director of industry analysis for sales tracker Edmunds.com, this strategy only works if you don't give away the store.

"Giving cars away will hurt you worse in the long run," said Toprak, referring to consumers' tendencies to associate discounts with decreased value. "Give credit to domestics that they realized that, and they're not blindly going after market share. That's a bigger negative impact on their brand image."

GM appears to be following this advice, attempting to boost sales and unload 2007 inventory by offering cash back and enticing financing options that are modest in comparison to competitors' incentives. However, this still seems to contradict the company's commitment to focus on profitability and not sales volume. As one blogger noted, General Motors is "damned if it does, and damned if it doesn't" when it comes to rebates.