Spring Selling Season Puts Auto Sales Volume Ahead of Profits -- Again

It's worth amplifying a point I made here recently, which is that Chrysler isn't the only one to turn up the volume on customer incentives recently. So are General Motors, Ford (F), and of course Toyota (TM), which is still using discounts to offset the ongoing Toyota and Lexus recall situation.

After I criticized Chrysler rebates earlier this week, a friend at Chrysler accused me of having a "glass completely empty" attitude about Chrysler, as opposed to glass-half-full. I still think that because of its history, Chrysler is uniquely vulnerable to the perception that it relies too heavily on the deal-of-the-month. However, it's also fair to point out, again, that Chrysler isn't the only one.

I really thought that post-bankruptcy for Chrysler and GM, and after a wakeup call for Ford, the factories could resist the temptation to cut prices to move the metal. That would usher in the long-awaited age of Truth in Sticker Prices.

That seemed more achievable than it had for decades, because Chrysler, Ford and GM downsized and lowered their breakeven points. They also cut fixed labor and health care costs to the point where it no longer made sense to build cars at a loss just to keep the factories running.

In fact, according to Edmunds.com, incentives for most automakers are down from year-ago levels. But in May, they seem to be creeping back up.

"Hurry, This Won't Last Long!" Toyota implores on its Web site, offering a free two-year maintenance plan on top of zero-percent financing deals. GM is having what it calls a "Spring Event," with some zero-percent loans up to 72 months.

Ford is holding a "Swap Your Ride" promotion, which on the face of it at least seems to be more discriminating. There are low lease offers on newer models like the Ford Focus, for instance, but more generous zero-percent loans for 60 months or $3,000 cash back on the 2010 Ford Explorer, which is due to be replaced soon.

Despite what Toyota says, I bet the deal-making will last a long time, because customers have grown to expect it. Toyota itself has already extended its "limited-time" offers twice. That's the thing about discounting. It works to pump up sales volumes, but like the song says, once you get started, it's hard to stop.

It's true that post-downsizing, the domestic U.S. car companies can more easily afford the discounts. But that's not the same as saying they can set a realistic suggested retail price and stick to it. If they did, they might lose market share. This spring, at least, it looks to me like sales numbers still trump long-term profitability in the grand scheme of things, despite the U.S. industry's recent near-death experience.

Photo: toyota.com