Pricing is Key to Car Sales

Coming off a season of heavy discounts, zero percent loans, and "employee pricing," car manufacturers are challenged to come up with the next greatest pricing plan. Unfortunately, they've left themselves with almost nowhere to go. Therefore, you'll begin to see a number of less drastic pricing maneuvers that carmakers hope will maintain sales and improve profits.

We've already discussed "value pricing" in an earlier post. This is intended to reduce sticker prices to more closely match what customers expect to pay, without having to resort to discounts and rebates. However, watch for those "value" prices to start low and gradually increase over time. Instead of big price increases at the beginning of a new model year, watch for a number of smaller increases during the year.

Another change that will be more difficult to observe will be an increase in the use of factory-to-dealer rebates that will give dealers more flexibility in dealing with individual customers who need help, especially for customers wanting to trade but who have large negative equity. In this case, a dealer can use his rebate to help the customer offset his negative equity by offering more for his trade-in. Manufacturer-associated finance companies such as as GMAC may also increase the amount they are willing to loan when the customer wants to roll over negative equity.

It is yet to be determined if these more subtle pricing schemes will be successful, given that the automotive buying public has become thoroughly accustomed to rebates, low cost loans, subsidized lease deals, and employee "below invoice" pricing.