Sales Are Rising, But Incentive-Happy Automakers Are Kneecapping Profits

Steph Willems
by Steph Willems
sales are rising but incentive happy automakers are kneecapping profits

Light vehicle sales haven’t peaked in the U.S., but the way they’re being sold is putting automakers in some financial peril.

That warning was delivered by Thomas King, vice-president of the Power Information Network, ahead of this weekend’s National Automobile Dealers Association, Wards Auto reports.

Speaking at the J.D. Power Automotive Summit, King said retail sales of cars and light trucks will rise this year and next, even after a very healthy 2015. Last year saw 14.2 million units reach customers, with volume projected to hit 14.7 million in 2017.

Despite moving more vehicles and rising MRSPs, automakers risk forgoing the financial benefits due to incentives and a growing trend towards leasing.

On average, incentives account for 9.6 percent of a vehicle’s suggested retail price, King said, and that number is up by 0.7 points. That’s drawing close to pre-recession levels.

Cars are more incentivized than trucks, averaging 12.3 percent (or $3,660 per vehicle), while trucks average 8.2 percent. Leasing incentives average $6,710 per vehicle, and the popularity of leasing is booming.

The troubling news for manufacturers and dealers doesn’t end there. Returning off-lease vehicles are flooding dealer lots, negatively effecting residual values. The growing volume of returning cars recently prompted Toyota to start offering pre-owned leasing.

Loan lengths are growing as credit scores are falling, adding to the risk, while an oversupply situation has 31 percent of vehicles resting on lots for 90 days or more. No dealer wants trees growing around their inventory, so the urge to move units in any way possible grows.

“So that’s a pain point for retailers, particularly with the skinny margins (for dealers) on vehicle (sales),” King said.

All of these factors could easily cause automakers to double down on incentives, but King urged “discipline” in order to preserve the industry’s long term health.

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  • Zip89123 Zip89123 on Apr 01, 2016

    It's just one month folks, and while the deals are above average, they're not outstanding. Toyota lost a few points even with 0% for 72 months APR on their best sellers. It's way too early to tell what the future holds for 2016.

  • Eamustangs Eamustangs on Apr 02, 2016

    I can't get the local Dodge dealer to discount a new 2015 Charger R/T as much as I would expect/like

  • Sayahh Is it 1974 or 1794? The article is inconsistent.
  • Laura I just buy a Hyndai Elantra SEL, and My car started to have issues with the AC dont work the air sometimes is really hot and later cold and also I heard a noice in the engine so I went to the dealer for the first service and explain what was hapenning to the AC they told me that the car was getting hot because the vent is not working I didnt know that the car was getting hot because it doesnt show nothing no sign no beep nothing I was surprise and also I notice that it needed engine oil, I think that something is wrong with this car because is a model 23 and I just got it on April only 5 months use. is this normal ? Also my daughter bought the same model and she went for a trip and the car also got hot and it didnt show up in the system she called them and they said to take the car to the dealer for a check up I think that if the cars are new they shouldnt be having this problems.
  • JamesGarfield What charging network does the Polestar use?
  • JamesGarfield Re: Getting away from union plantsAbout a dozen years or so ago, Caterpillar built a huge new engine plant, just down the road here in Seguin TX. Story has it, Caterpillar came to Seguin City council in advance, and told them their plans. Then they asked for no advanced publicity from Seguin, until announcement day. This new plant was gonna be a non-union replacement for a couple of union plants in IL and SC, and Cat didn't want to stir up union problems until the plan was set. They told Seguin, If you about blab this in advance, we'll walk. Well, Seguin kept quiet as instructed, and the plan went through, with all the usual expected tax abatements given.Plant construction began, but the Caterpillar name was conspicuously absent from anywhere on the site. Instead, the plant was described as being a collective of various contractors and suppliers for Caterpillar. Which in fact, it was. Then comes the day, with the big new plant fully operationa!, that Caterpillar comes in and announces, Hey, Yeah it's our plant, and the Caterpillar name boldly goes up on the front. All you contractor folks, welcome aboard, you're now Caterpillar employees. Then, Cat turns and announces they are closing those two union plants immediately, and will be transporting all the heavy manufacturing equipment to Seguin. None of the union workers, just the equipment. And today, the Caterpillar plant sits out there, humming away happily, making engines for the industry and good paying jobs for us. I'd call that a winner.
  • Stuki Moi What Subaru taketh away in costs, dealers will no doubt add right back in adjustments.... Fat chance Subaru will offer a sufficient supply of them.