Vehicle Revenue Drops Amid Sales Slump

New-vehicle incentives are rising rapidly, but unlike cut-throat markets of the past, sales remain tepid, and the combination is cutting more deeply than ever into manufacturers' revenue — especially among the Detroit Three auto makers.

In the year's first nine months, the average vehicle price in the U.S. fell 2.3% to $27,721 from $28,371 in like-2007, according to sales forecasting and analysis group J.D. Power and Associates. At the same time, average incentive spending per unit grew 10.1% to $2,810 from $2,553.

That combination has driven net pricing down $900 per unit to $24,911 from $25,818, J.D. Power says. And with retail volume trailing last year's pace by 1.2 million units, the market's collective revenue has been trimmed 15.3% to $214.1 billion from $252.6 billion.

“That's a huge reduction in revenue,” says Tom Libby, senior director-industry analysis at J.D. Power.

The situation gets worse, Libby says during a forecasting conference in metro Detroit. In the third quarter, the market's collective revenue plunged 23.4% to $67.1 billion from $87.6 billion in like-2007.

Typically, when auto makers turn on the incentives spigot, sales respond. In August, for example, incentives pushed light-vehicle deliveries to a seasonally adjusted annual rate of 13.7 million units, according to Ward's data. Consumers appeared to grow numb to the scheme quickly, as September's SAAR slipped back to 12.64 million units.

The culprits are many, but Libby points particularly to tighter lending practices as the nation's financial industry wrestles through the credit crisis.