No Great Labor Day Rebates

Labor Day typically is a time for picnics, parades and rebate-sweetened sales at auto dealerships.

But there wasn't much of the latter this year, says Alec Gutierrez, manager-vehicle valuation for Kelley Blue Book.

The holiday's sale-a-thons didn't feature much in the way of generous manufacturer incentives to lure customers, he says. “The deals won't come until later in the year.”

That's because 2011 vehicle inventories remain low, mainly because auto production in Japan has yet to fully recover from the devastating effects of the earthquake and tsunami that hit the nation in March.

Consumer demand for vehicles is increasing, a sign of the auto industry getting back on its feet. Now, ironically, the supply side is down.

“Japanese auto makers expect to be at full production in September,” Gutierrez tells Ward's. “That means more products in the pipeline in the fourth quarter. The deals will be at year-end sales.”

But some dealers offer their own Labor Day deals, says Harry Douglas, a former dealer and now host of Car Concerns, a syndicated radio show. “There might not be incentives from auto makers, but there will be deals.”

Ward's data records days' supply in July at 51 for domestic auto makers, 45 for the European brands, 42 for the Japanese and 23 for the Koreans.

The latter is lean because Hyundai and Kia vehicles are hot sellers. U.S. auto makers have cut back on their build schedules to avoid the overcapacity that previously has hurt them.

But the low days' supply for Japanese brands is due to powerful forces of nature, not the marketplace. “Japanese inventory has been suffering,” Gutierrez says, citing a 46.8% drop from January to August.

Low-inventory levels aren't across the board. Sales are soft for some makes and models, such as domestic fullsize pickup trucks and SUVs, he says. “We're not seeing a glut with those segments, but they are higher on the supply side.”

But overall incentives remain low. The average rebate for fullsize trucks now is $1,975, about half what it was a year ago, according to Kelley. The average incentive on midsize cars and cross/utility vehicles, respectively, is $785 and $368. That compares with $1,195 and $919 last year.

The market average for incentives is $744 year compared with $1,519 a year ago, Kelley says.

General Motors offers the largest average rebate of $2,208, followed by Chrysler ($999), Ford ($735) and Toyota ($373).

Led by Toyota, when Japanese auto makers return to full production, they likely will spice up rebates in a bid to recover lost U.S. market share, Gutierrez predicts.

“The Japanese recovery in terms of production will define incentive levels,” he says. “The Japanese will be first out of the gate with incentive increases. The domestics and Koreans will have no choice but to follow.”