February Sales: Leasing, Incentives and Price Wars, Oh My!

Edward Niedermeyer
by Edward Niedermeyer

Remember the phrase “jobless recovery”? Well, the auto industry is having something of a “price dropping recovery.” The headline for February auto sales may have been “the buyers are back,” but beneath the big volume boosts there’s trouble a-brewing. According to TrueCar’s transaction price forecast (above), Hyundai CEO John Krafcik was right to warn of an industry price war, as the industry has lost .3% of its average transaction price during the last year of recovery. Over the last year, Honda, Kia, Toyota and GM have all seen declines in average transaction prices, led by GM’s staggering two percent drop. And falling transaction prices are just the beginning: as we explore after the jump, incentives are also remaining high, and yet another volume-boosting technique is enjoying a boom as the industry once again starts to redline its sales.

Though both TrueCar (top) and Edmunds (bottom) show small declines in average incentive spending, the recovery in volume clearly isn’t having the desired (or expected) effect on incentive spending. And as with transaction prices, GM is the big loser on the incentives front, outspending the competition according to both reports, and recording one of the biggest year-over-year increases in incentive spending. But, argues TrueCar’s Jesse Toprak

The industry average for incentives is the lowest for February since 2007. The perception of a pricing war and overindulgence of using incentives is exaggerated. Automakers are now using incentive programs that are much more favorable. They are no longer spending as much upfront by offering customer and dealer cash and are instead pushing low APR and leasing programs.

But not everyone sees the combination of weak pricing, resilient incentives and high lease penetration as such a benign influence. Edmunds’ Jessica Caldwell argues

General Motors and Nissan are showing the biggest year-over-year boosts in incentives among the top six automakers. It isn’t any coincidence that Edmunds.com also reports that both companies saw their highest single-month lease penetrations in at least the last decade.

And in a WSJ piece, Caldwell singles out GM for a drubbing on this point

“For people who want to come in and buy a Buick or Cadillac, leasing is another alternative that sales people can guide them too,” Caldwell said. And while leasing has helped lift retail sales, it also poses a problem for the auto industry as many of those cars will be re-sold in a few years, flooding the market.

For example, 48% of the Chevrolet Malibu models sold by General Motors Co. (GM) were leased, a figure that is “way too high,” according to Caldwell. Caldwell said leasing made up 38% of Chevrolet Cruze models sold last month, and 69% for the Buick Regal.

GM also spent a lot on incentives this month, which helped lift sales. Caldwell told Dow Jones that when the auto maker’s first-quarter figures come out, “there will be a lot of questions on what they spent on incentives, because it’s going to be a lot.”

Now, a 48% lease mix may be “way too high,” but at least it’s an older vehicle. High numbers for the brand-new Cruze and Regal are far more worrying. And given that GM’s leases are so high, incentives are up (and at the highest levels in the industry), and transaction prices have fallen in the last year, it’s looking like the industry might be OK but GM is trying to buy volume however it can (to be fair, GM’s 21% fleet mix shows some discipline). And if a player as big as GM keeps trying to redline its sales, it’s only a matter of time before it drags the industry into a real price war. That’s good for consumers, but it’s bad news for an industry that’s still trying to recover pricing even as it recovers volume.


Edward Niedermeyer
Edward Niedermeyer

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  • GarbageMotorsCo. GarbageMotorsCo. on Mar 02, 2011

    Here you go. 138 per month on a CTS sedan, 139 per month on a coupe and 209 per month on an SRX http://www.olsencadillac.com/NewModelsPage

    • See 1 previous
    • Th009 Th009 on Mar 04, 2011

      Were those for real? Two days later, it's $339 for CTS sedan, $369 for CTS coupe. Mistakes maybe?

  • Steven02 Steven02 on Mar 02, 2011

    Do transaction price numbers take into account MSRPs? The reason I ask... say GM sold (or leased) more cars this month than it did before. Transaction price would go down because of that. Seeing that Cruze sales are up, could this be the cause of the transaction price decline? Could we also get dealer incentives numbers as a function of the transaction price? I think that would be very interesting data.

  • Bkojote @Lou_BC I don't know how broad of a difference in capability there is between 2 door and 4 door broncos or even Wranglers as I can't speak to that from experience. Generally the consensus is while a Tacoma/4Runner is ~10% less capable on 'difficult' trails they're significantly more pleasant to drive on the way to the trails and actually pleasant the other 90% of the time. I'm guessing the Trailhunter narrows that gap even more and is probably almost as capable as a 4 Door Bronco Sasquatch but significantly more pleasant/fuel efficient on the road. To wit, just about everyone in our group with a 4Runner bought a second set of wheels/tires for when it sees road duty. Everyone in our group with a Bronco bought a second vehicle...
  • Aja8888 No.
  • 2manyvettes Since all of my cars have V8 gas engines (with one exception, a V6) guess what my opinion is about a cheap EV. And there is even a Tesla supercharger all of a mile from my house.
  • Cla65691460 April 24 (Reuters) - A made-in-China electric vehicle will hit U.S. dealers this summer offering power and efficiency similar to the Tesla Model Y, the world's best-selling EV, but for about $8,000 less.
  • RHD The analyses above are on the nose.It's a hell of a good car, but the mileage is reaching the point where things that should have worn out a long time ago, and didn't, will, such as the alternator, starter, exhaust system, PS pump, and so on. The interiors tend to be the first thing to show wear, other than the tires, of course. The price is too high for a car that probably has less than a hundred thousand miles left in it without major repairs. A complete inspection is warranted, of course, and then a lower offer based on what it needs. Ten grand for any 18-year-old car is a pretty good chunk of change. It would be a very enjoyable, ride, though.
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