Discipline holding on US pricing, I stand corrected.

November sales looked good. I’m not excited about the volume. I’m much more heartened by the spending behavior. Across the board it appears we had a month of discipline. Edmunds data for “total cost of incentives” showed an 8.6% drop from last November, with GM and Nissan bumping spending up. Given the current levels, I’m not overly concerned for either company as GM is moving truck inventory out and Nissan didn’t have the same inventory shortage as Toyota and Honda. Edmund’s headline for their report caught my attention. Their analysis shows more spending on ads than usual, which is good. But a lot of those ads were touting deals, which is not so good.

One more thing to keep in mind is the inversion of incentive in the range. 10 years ago, the big three had to discount their small cars to move them while trucks and SUVs raked in high margins.

Today, small cars are moving on their own for two reasons; 1) after all the brand realignments, they are properly priced, without an inflated MSRP designed to promote “optical discounts” and 2) more consumer frugality.

The roughly 10% increase in incentives on trucks and 13.6% increase for large cars represents the efforts to work off the error of overproduction in the past six months and a little battle for market share on the luxury side.

Comment: what to look for in the future:

  • Continued lower incentives on smaller cars with new entries into the market and as Toyota and Honda ramp back up to speed.
  • Increase in spending on full size pickups and SUVs to work down inventories
  • Steady spending by top 2 luxury makes as BMW and MB duke it out, Audi continues making inroads and Lexus ramps back up.
  • Watch for Toyota particularly to ramp incentives back up in Q1 2012 (their Q4) to gain back some market share. Given their current level is 35% lower than Nissan’s current level, they have plenty of resources and room to spend without distorting their brand.

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