Price War? Widespread Incentives Boost SAAR to 13.4 Million

FINAL SAAR: 13.4 million.

See sales summary table.

After GM aggressivley pursued the retail market in January, with unexpected incentives and boosted market, much of the rest of the industry followed suit in last month, lifting deliveries well above expectations to 989,808 units, a 27.2% increase over year-ago. That lifted the seasonally adjusted annual rate to 13.4 million units, the highest SAAR, barring August 2009's Clunker-fueled result, since August 2008.

GM again rolled out targeted incentives, including lease pull-aheads, and reached out to subprime buyers, to boost its sales 46.4% increase over year-ago - twice the growth analysts were expecting - with a 70% increase in retail sales.

Toyota, which announced a strong incentive program at the beginning of in February also outperformed expectations, with a 41.8% increase over a recall-depressed Feb. 2010

In fact, with the exception of Ford and the Hyundai Auto Group, all the other Top 7 auto makers outpaced analyst expectation for the month, largely on the strength of expanding incentives.

The incentive spending seemed to have the effect of bringing new customers into the market - by lowering prices and making credit more available, the companies appear to have attracted people who had previously been excluded from the new vehicle market.

However, the moves raise several issues. By introducing widespread incentives this early in the recovery, have the automakers opened a box they won't be able to shut? Prior to January, prices had been fairly stable - now consumer expectations may force automakers to continue offering "great deals." Wall Street's early response seemed to focus on the possibility that the ultimate effect of the incentive spike would be to reduce profits.

GM, however, seems to be gambling that slightly lower profits per vehicle can be more than offset by increased volumes, and indicated that they expect SAARs to hit the 14 million mark by the end of the year. (This is in line with Ward's current Sales forecast for the year.)

A short-term concern is that to the extent the lease pull-ahead programs are successful, they are exactly what they're called: Pull-ahead sales. While companies that engage in them ensure that they land the lease renewal, from an industry perspective these sales are coming directly out of future months.

Nonetheless, with the subprime market seemingly opening up for the first time, it's possible that February's results indicate the next "step up" to recovery, with a strong possibility that the 13 million unit SAAR has become the newest "normal."