Edmunds Says Hyundai CEO Claim of Price War Premature

Edmunds says its data shows the price war talk is premature while Krafcik contends, in an interview with Reuters via Automotive News, "I think we can officially say that a price war broke out in the industry." So, which side is right?

The Edmunds numbers would appear to support Krafcik's argument. GM, according to the Hyundai Motors America CEO and president, commenced the price war in January and was quickly matched by Toyota.

In a statement denouncing Krafcik's claim, AutoObserver’s Dale Buss reports that General Motors paid $3,733 in True Cost of Incentives (TCI), on average, for each 2011 model year vehicle sold in January -- a 22 percent increase over its TCI average in December 2010. The automaker’s incentive boost was a major departure from typical January car deals and no other major automaker came within even half of GM’s incentives increase.

“It takes at least two sides to battle, and besides a reluctant Toyota, no other major automaker has joined GM’s unseasonably proactive incentivizing,” said Buss. “With a recovery gradually building in the U.S. market, most car companies don’t see a need to deliver more incentives.”

According to the Reuters article, AutoData has a slightly different interpretation of the numbers. GM's incentive spending rose 16 percent to an average discount of $3,663 in January, while Toyota's spending jumped 24 percent to $1,962, according to Autodata Corp. "I would call this a step backward for the industry," said Krafcik. "This is short-term thinking in a long-term process that hurts manufacturers and consumers." Hyundai's average incentive was about $1200 in January, according to Krafcik, which he said was lowest in the industry.

Besides, Buss seems to think that GM and Toyota aren't the top players in the automotive marketplace, when obviously they are. GM sold 2.08 million vehicles in the U.S. in 2010. Toyota sold 1.77 million vehicles in the same time frame. That's one-third of the vehicles sold last year. If the number one and number two companies, representing 33 percent of the market share, get into a price war, there's a price war.

Edmunds.com analysts speculate that GM’s aggressive incentives spending is more of a short-term play to increase market share than an attempt to drive a “price war” with competitors.

“GM’s increase in incentives could be an attempt to draw out what industry observers have predicted for a while now: a period of pent-up demand accumulated during the recession that should result in a better sellers’ market,” said Edmunds.com’s Chief Economist Lacey Plache. “They may be thinking that consumer spirits are up now, and there are signs of credit loosening, so they’re seeing if they can pull some people out of the woodwork who may be ripe for buying.”

In an article written by Buss at AutoObserver.com, Citi analyst Itay Michaeli concluded that, “while GM’s large share gain [in January] may prompt competitors to respond, lean industry inventory and genuine intentions to avoid repeating past mistakes suggest it is too early to worry about an all-out incentive war. The 2010 pricing environment was quite firm. Once you got past Toyota’s situation, there was no stupid, crazy game with incentives. So at the very least, Krafcik’s remark is premature.”