Edmunds: Automakers cut back on incentives

June 1, 2011 12:00 AM

Prices for new cars rose during the month of May, mainly because automakers cut back on incentives and rebates offered to drivers.

Automakers very rarely change the price of a vehicle once its been announced, instead opting to respond to changing market conditions on a monthly basis. Effectively, the price of a vehicle can be raised or lowered based on how many incentives an automaker is offering at any given time. So cutting back on incentives is essentially indicative of the price of buying a new car rising.

In May, Edmunds found that the average incentive offered on a new vehicle was $2,002, down $107 from April. That figure was also down sharply from May of 2010 by $695.

A number of factors have caused automakers to scale back on incentives. For starters, there was a blitz of deals offered during the first few months of the year in an effort to continue the sales momentum from the end of 2010, so automakers are naturally easing back now. In addition, the Japanese earthquake has slowed production, meaning that dealers are trying to sell vehicles for as high a price as possible.

Finally, some believe that the interest in smaller cars is causing incentives to be lowered. These cars start out cheaper, and thus don't need big rebates to attract sales.

"The continuing market shift toward small fuel-efficient vehicles is keeping overall auto maker incentives at the lowest levels we've seen in years," said Jessica Caldwell, an analyst for Edmunds. 

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