First, all incentives simply pull ahead sales from a future time frame to the ‘deal period’. At some point, the turn-ins would have to be replaced; but by essentially marking down the price, those future sales are pulled forward. This enhances the cyclical nature of vehicle sales.

Second, sales that are not pulled ahead are deferred. There is some analysis that shows that people delayed new vehicle purchases waiting for this government program to start, and anybody who doesn’t get in on the deal will probably sit on the sidelines waiting for another round of cash-for-clunkers. The case study here is the 0% interest rates that GM started after Sept 11th.

Lastly; sales, cashbacks and incentives alter the nature of new car sales. It becomes less about the aspirational nature of the product and more about the ‘deal’. In essence, this kind of deal turns cars into appliances; which is bad for their residual value and for the brand.

Essentially, the owners of the new GM and new Chrysler need to learn the same hard lesson, the hard way, that the old GM and old Chrysler learned — incentive based sales become a race to the bottom.