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General Motors Co. and Toyota Motor Corp. boosted incentives for U.S. customers in January, helping them to two of the biggest sales gains in the industry.
GM increased spending on marketing promotions by $498, or 16 percent, to an estimated $3,663 per sold vehicle, according to researcher Autodata Corp. Toyota, which halted deliveries a year earlier due to a recall, raised spending 24 percent to an estimated $1,962 a sale.
While discounts such as rebates or below-market interest rates on car loans can help increase sales volumes and market share, they also reduce average sale prices and can decrease profits. The incentives offered by Toyota and Detroit-based GM helped the companies match or outpace the industry's 17 percent gain in sales volume in January.
"As more buyers enter the market, the trick is going to be keeping transaction prices up because that's been profitable for the industry," said Alan Baum, an analyst at industry consultant Baum & Associates in West Bloomfield, Michigan. "GM's got to realize that's their goal."
Auto incentive spending throughout the U.S. industry in January rose less than 2 percent to $2,579 per vehicle, according to Woodcliff Lake, New Jersey-based Autodata. Chrysler Group LLC's average was $3,414, a decrease of 1.3 percent from a year earlier.
Ford Motor Co. reduced average incentive spending 11 percent to $2,407. The Dearborn, Michigan-based company trailed rivals with a 9.2 percent increase in January sales.
Industrywide light-vehicle sales ran at a seasonally adjusted annual rate of 12.6 million in January, exceeding analysts' estimates and matching the market's fastest pace in 17 months.
GM's sales rose 22 percent last month while Toyota had a 17 percent gain in January. By increasing use of incentives, GM and Toyota City, Japan-based Toyota risk starting a price war that would hurt profits, Brian Johnson, an analyst at New York-based Barclays Capital, wrote Wednesday in a research note. They are already facing higher commodity costs.
"GM's use of 'targeted' incentives may mark, in our view, a dangerous first salvo in a heretofore quiet pricing front," Johnson wrote in a note titled "Is this how price wars start?"
Nissan Motor Co., Japan's second-largest automaker, reduced U.S. incentives 16 percent to $2,510, while Honda Motor Co., the third-largest Japanese car company, boosted discounts 41 percent to $2,016.