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Automakers are cutting back on steep discounts, special promotions

SHARE Automakers are cutting back on steep discounts, special promotions

DETROIT — For years, Americans shopping for cars were treated to all sorts of deals and incentives, especially at the end of summer. Think Cash for Clunkers, which paid up to $4,500, or promotions that offered employee discounts to everyone.

Those days are over.

Deals are getting more scarce because automakers, newly lean and profitable, are holding the line on those profit-eating promotions. In July, they offered $1,000 less in incentives per car than a year earlier, according to Edmunds.com.

And with no one expecting the government to offer a repeat of the Clunkers program, get ready for fewer discounts on your next car.

"This may be as good as it gets, and get used to it," says Jeff Schuster, the executive director of forecasting for J.D. Power and Associates.

As a result, U.S. auto sales are at a standstill, with potential buyers waiting for more deals but automakers resisting. The industry expects this to be the worst August in 18 years, with sales barely over 1 million cars and trucks. Sales are expected to fall 3 percent from July, according to car-pricing website Truecar.com.

August usually sees strong sales as automakers offer deals to clear out the lots for new models. In August 2007, before the recession, automakers sold nearly 1.5 million new cars and trucks. Last August, when sales were at a 30-year low, the government came to the rescue. Cash for Clunkers, which paid buyers up to $4,500 per vehicle, boosted sales by about a third to 1.2 million.

But this year, the government is on the sidelines, and so are many buyers.

The standoff between buyers and car makers could continue through the rest of the year unless companies sweeten deals or there's some sort of government intervention, says Jesse Toprak, TrueCar's vice president of industry trends and analysis.

"We really need some sort of catalyst to take us up to a higher level," he says. Car sales are still far below normal levels because, with unemployment still high and home values sharply lower, consumers just don't feel confident enough to buy.

Others say a healthier economy — not incentives — is the only real driver for higher sales.

"Just lowering prices is not going to solve the problem," says George Pipas, Ford's top U.S. sales analyst. "The key is an improved consumer outlook."

Automakers have been vowing to cut back on incentives for years. But this time, they mean it.

In the last few years, Detroit automakers — and, to a lesser extent, their foreign rivals — have closed plants, cut tens of thousands of workers and aligned production with demand. Because they're producing fewer vehicles, they don't need to offer discounts to get rid of excess cars and trucks.

Since 2004, automakers have cut their North American production capacity by 18 plants and 2 million vehicles, Citi Investment Research auto analyst Itay Michaeli says.