It’s increasingly looking like 2015 will be a high-water mark for U.S. auto sales, with September sales stats showing a cool-down in the new car market.
Faced with a long-predicted slump — the duration of which is still anyone’s guess — and growing competition over remaining market share, automakers have boosted incentive spending to its highest level since the depths of the recession.
According to Reuters, September incentive spending is on track to surpass a previous record set in December 2008. Industry data shows discounts averaging $3,923 per new vehicle sold, compared to $3,753 during those dark days eight years ago.
Mark Wakefield, North American automotive practice head at consulting firm AlixPartners, tells Reuters that the market has shifted. Instead of customers pulling vehicles off the lot, automakers are pushing them (with whatever deal helps moves the inventory).
Sales stats compiled by TTAC’s Tim Cain show a 0.7 percent decrease in sales in the U.S. last month compared to the same period last year. Even juggernauts like the Jeep brand and the Ford F-150 saw a decline. If the trend continues, it’s possible the industry won’t match the record 17.45 million vehicle tally of 2015.
Two automakers, General Motors and Toyota, still predict a new record in 2016, but others aren’t so optimistic. The industry as a whole is under increased pressure to discount new vehicles. Fox Business claims incentive spending as a percentage of average transaction price hit 10.2 percent in September, compared to 9.7 percent in September 2015.
If the looming slump isn’t as bad as some predict, and sales remain relatively high, there’s less of a concern that discounts will erode a manufacturer’s bottom line. Recently, a boastful GM announced that it could remain profitable if the market slumped by 40 percent.
[Image: © 2015 Mark Stevenson/The Truth About Cars]
Some incentives I’ve seen in commercials are just crazy, like 18-20 percent, on some GM vehicles.
A friend bought a Cummins Ram, and a virtually option less (save for a manual tranny) one to boot, for almost 25% off… Another an F150 (albeit richly optioned and with the outgoing 3.5 engine) at 22%. Both of them the “most popular” crew cab layout, and both of them cash buyers.
I wouldn’t call the current sales rate a slump, it’s more like an expected rate. We were previously dealing with pent up demand from the Great Recession, which is an anomaly.
I’m no economist, but this to me is quite bad. Incentives the same as they were during a depression? How bad is this gonna get when the entire economy goes through a dip?
Doesn’t sound like those numbers take into account 8 years of purchasing power destruction, but the concern is still there.
I understand production numbers can also cause this. Could pull back on production but this is also unhealthy for the automakers.
If you’re in the market, could be some good deals ahead!
“How bad is this gonna get when the entire economy goes through a dip?”
The manufacturers and dealers are f*cked if they lose the ability to offer sweetheart lease deals and 72+ month loans.
This is an important point:
What cost $3753 in 2008 would cost $4199 in 2016, using the Bureau of Labor’s consumer price index.
So we’re still 7% below the recession figure, assuming Reuter’s numbers aren’t already adjusted for inflation (which they might have “forgotten” for maximum effect)
Can I get cash on the hood for a used Aztek?
Oddly enough, the Aztek has become a bit of a cult favorite and decent ones are pretty easy to sell and bring good money.
I saw a very well-kept-looking bright red Aztec yesterday in Tacoma. I do have to say though that it is the only Aztek I’ve seen on the street in over a year.
So you are saying demand for Azteks is in tents?
It’s all in the pitch.
You can thank/blame Breaking Bad for that.
Combine the end of the model year with a slight decline in sales, and you end up with more incentive spend in order to clear the excess inventories, particularly last year’s models. So that isn’t surprising.
Ford’s high incentives followed by high margins show how false MSRP really is.
MSRP reductions would lower the price ceiling of vehicles, so it’s tough to imagine a car maker doing that.
MSRP has to be at the top of the range, of what they can possibly sell for. Maybe for 0% financing and zero down. They can’t exactly raise the MSRP for that and other occasions when they can get more than what the market normally pays.
On every family/big bag of Ruffles, Dorittos, Lays, etc, they’re labeled $4.95 MSRP, but they’re always on sale for 2/$5, unless you’re at the liqueur store, gas station, etc, where they stick you for full price.
There are still people that think MSRP is the ‘real’ price.
Three weeks ago a friend (who admittedly is a couple short of a six pack) told me he got t-boned and went searching for a new car.
Me..”get a good deal?”
Him.”yep. Got it for sticker.” said he with a grin as he patted his back.
Had to have a difficult and delicate conversation with him. I don’t even want to talk about the interest rate he signed on for, or the length.
Incentives are required to “roll over” deficiencies (negative equity) on the trade ins.
Its a component of the “pull ahead” that all dealers are doing.
Its the new reality of the auto business, to have a higher MSRP, provide incentives to facilitate rolling over deficiencies, while pulling ahead to abbreviate the longer finance terms.
“Its the new reality of the auto business, to have a higher MSRP, provide incentives to facilitate rolling over deficiencies, while pulling ahead to abbreviate the longer finance terms.”
Is this sustainable?
Of course this is sustainable. It has been going on for decades. How do you think Mitsubishi has been selling cars in the U.S for the past 15 years?
I last worked retail F&I in a car dealership in 2002. While the fax machine is no longer used, the methodology to structure a car deal to get bought by the bank is the same. credit, collateral, & cash down. The worse the credit, the more cash down that is needed to get to an equity poisistion for the bank. Enter the new car with 4k rebate, that shows as equity + the customers limited amount of cash and voila you have your sub prime borrower in a new car.
With used car values stupid high, you can’t make it work like you could in the past. In the early 00’s you could by the Ford Taurus for half of book, which was your go to car for the sub prime buyer as you needed little cash down to show an equity position.
Mitsubishi isn’t exactly on fire though.
Actually, Mitsubishis are on fire.
https://consumerist.com/2016/08/16/mitsubishi-recalls-45k-outlander-sports-over-fire-concerns/
“the methodology to structure a car deal to get bought by the bank is the same. credit, collateral, & cash down. The worse the credit, the more cash down that is needed to get to an equity poisistion for the bank. Enter the new car with 4k rebate, that shows as equity + the customers limited amount of cash and voila you have your sub prime borrower in a new car.”
What it basically sounds like is the MSRP is inflated so they can offer “discounts” to get financing approved. I can’t help but be reminded of the days of the subprime housing boom, where numbers (particularly appraisals, but also incomes, etc) were inflated to be sure that banks would approve loans that shouldn’t get approved. I can’t help but wonder if it doesn’t all come crashing down as well. After a few cycles you would expect the amount of negative equity that needs to be rolled over to be so big that people are stuck with their cars (which may or not be functional any longer), or just willing to allow them to go to repo to get away from them.
MSRP is based on what fools will pay. Or what anyone would pay if it’s in very high demand, say ‘pent up’ demand. Like when the PT Cruiser was launched or the Camaro came back. Otherwise carmakers would be constantly adjusting MSRP to actual “demand”. With some exciting ‘limited editions’ expect to pay full MSRP or more, to be the first on the block to have it.
Its sustainable up to a point, if dealers pull ahead customers with too recent models the deficiency is too high.
Sales might dip like September did since the pull ahead did not work for models that are too recent (an example). Consequently the customer is out there for a longer period on the 84 month loan term.
The ride is not over, it gets tweaked and recalibrated as everyone goes along.
In addition incentives provide every manufacturers with a tactical tool to move specific iron, at a specific time, for a specific reason.
I tend to see higher rebates this time of year with pickups. The picture of the Titan XD is rather apropos. Those trucks weren’t on the lots very long when I started seeing Canadian advertising for 14k off of MSRP. That is unheard of with a new model truck.
Yeah, I always see “major” discounts on F-Series, Ram and Chevy/GMC full sizers regularly. You can sneeze and get $6k off a Silverado. Most people who regularly buy those trucks expect as much. They know the game.
Even if, say Ford, dropped the MSRP to what the truck actually generally goes for, people would still balk at “paying sticker” even if its like $8k off what it was. A lot of people in this market tend to be loyal to one brand, but not always one dealer. Now more than ever, people shop around to get what they want for what they can afford.
I think it was Jack who was saying nobody builds basic work trucks anymore. The Ford dealer near where I was at in Florida had at least a dozen mostly white F-150 XL models with steel wheels, black trim, etc. It depends on if the dealer does regular commercial business, but I do see plenty of base model GM, Ford and Ram trucks (including regular cabs from those makes) Sometimes a Titan, almost never a newer Tundra.
Basic trucks tend to be a sustainable market (with regular fleet/commercial custumers) during an economic downturn, which is why I believe Nissan has added a regular cab Titan this time (not to mention a “heavy half-ton” with a diesel). With the Titan and the two NV lines, clearly they are serious about selling some trucks- and not just blinged out Platinums. I was thinking they could offer the Cummins in the top-level NV3500 van. It may not work as those vans were based on the old Titan.
JohnTaurus_3.0_AX4N – Highly unlikely that Titan would ever make any inroads into the fleet pickup market. It would make sense to put the Cummins V8 into a van but they’s run into the same problem that ford did with the E Series. The new diesels don’t fit.
I can’t help but feel we are in ‘Housing Crash 2.0’. I can’t believe the number of new cars I see around these parts (Toronto and environs) being driven by people whose cars seem to be completely at odds with their jobs and incomes. Mercedes, in particular, seems to be extending credit and sweetheart lease deals to anyone with a pulse.