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

Steph Willems
by Steph Willems

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.

Steph Willems
Steph Willems

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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

  • CanadaCraig You can just imagine how quickly the tires are going to wear out on a 5,800 lbs AWD 2024 Dodge Charger.
  • Luke42 I tried FSD for a month in December 2022 on my Model Y and wasn’t impressed.The building-blocks were amazing but sum of the all of those amazing parts was about as useful as Honda Sensing in terms of reducing the driver’s workload.I have a list of fixes I need to see in Autopilot before I blow another $200 renting FSD. But I will try it for free for a month.I would love it if FSD v12 lived up to the hype and my mind were changed. But I have no reason to believe I might be wrong at this point, based on the reviews I’ve read so far. [shrug]. I’m sure I’ll have more to say about it once I get to test it.
  • FormerFF We bought three new and one used car last year, so we won't be visiting any showrooms this year unless a meteor hits one of them. Sorry to hear that Mini has terminated the manual transmission, a Mini could be a fun car to drive with a stick.It appears that 2025 is going to see a significant decrease in the number of models that can be had with a stick. The used car we bought is a Mk 7 GTI with a six speed manual, and my younger daughter and I are enjoying it quite a lot. We'll be hanging on to it for many years.
  • Oberkanone Where is the value here? Magna is assembling the vehicles. The IP is not novel. Just buy the IP at bankruptcy stage for next to nothing.
  • Jalop1991 what, no Turbo trim?
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