So Far, 2018 Auto Sales Are Better Than Expected; Thank Dangerously Heavy Incentives
With the automotive market continuing to cool off, the industry went into 2018 with a less than optimistic view. Volume for the year is anticipated to continue its downward trend but, incredibly, January appears to be on par with the same period last year — if not slightly better.
Did the analysts get it wrong? Probably not. Incentive spending was up across the board and that’ll likely be the case throughout the rest of the year. The real trick will be for automakers to keep their lineups appealing without going wild with discounts. That’s because the annual forecast still calls for lower volume than in 2017.
Not everyone is in agreement, though. Cox Automotive and J.D. Power actually expect sales to rise about 1 percent, year-over-year, while Edmunds, Forbes, BMI Research, Nord LB, the Center for Automotive Research, and practically everyone else projects anywhere from a 1-to-2 percent decline. This January could end up being an outlier where auto deliveries were bolstered by high incentives, an extra selling day, and some luck.
“Coming off a strong sales period to close out 2017, a slower start to the year was anticipated,” Thomas King, senior vice president of the data and analytics division at J.D. Power, said in a statement. “After the industry’s emphasis on the sell-down of old model-year vehicles in December, January is a transition month as manufacturers shift focus towards 2018 model-year vehicles.”
At the start of the week, J.D. Power and LMC Automotive projected new vehicle sales for January would be about 1.153 million units, an increase of around 0.8 percent from 1.141 million units a year earlier. However, that prediction came from data that only takes the first 16 days of the month into account. Other firms suggest automakers will break even when official U.S. sales results emerge in February.
Less foggy are incentives, which averaged $3,733 per vehicle in January and set an all-time high for the month. That’s roughly 10 percent of a typical MSRP and far too high to be healthy, according to Reuters. Industry experts have repeatedly claimed that the double-digit threshold is when incentives start causing problems, damaging resale values and working against the industry. However, discounts have exceeded 10 percent in 18 of the last 19 months.
“The challenge in 2018 will be maintaining incentive discipline, coming off a year when incentive spending per unit reached the highest level ever recorded,” King said.
A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.
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Hard to say whether the incentives are dangerously heavy. The manufacturers have worked hard to raise transaction prices and stretch loan terms. Giving back to the customer may not be the end of the world, especially if the Trump admin relaxes CAFE, and torrential R&D spending on advanced powertrains abates slightly. Plus, tax cuts will put less pressure on marginal profits. The current car environment is more equitable for buyers. If you're a lazy schlub with a one-track mind, you can still throw a trade-in at the dealer and get taken for a ride. But, if you're a discerning buyer, various incentive packages from competing manufacturers allow you to shop around for a dealer/mfg that is looking for customers. For the last 5 years, deal-hunting has existed mainly in the used market.
Volvo, The best rate my mother could get on a $100k CD for five years was 1.61% at her credit union. We are going to pass on that and look for higher yields in Fidelity Bond funds.