By on October 25, 2016


U.S. car buyers wandered onto dealer lots in healthy numbers in September, but only because automakers heaped a record pile of cash on the hoods.

So lofty was the snow-capped peak of incentives required to move vehicles last month, it easily exceeded the previous record set in late 2008, when car buyers lived in boxes and sold old shoes on Craigslist to afford the downpayment.

Figures published by J.D. Power show new vehicle sales down by 7,000 units compared to September 2015, a drop of 0.5 percent. Average transaction price rose by $533 per vehicle, which, coupled with a 1.4 percent boost in consumer expenditures, propelled $37.2 billion into OEM coffers — a September record.

Whoa, put that cork back in that champagne. For all the cash flung at manufacturers, those companies are flinging it right back.

Compared to the same month last year, incentives rose by an average of $490 per vehicle, an increase of 13 percent. Every vehicle driving off dealer lots last month did so with a glove box bulging with incentive cash — $3,921 per vehicle, higher than the previous record of $3,752 set in December of ’08. When viewed as percentage of MSRP, September’s incentives amount to only 10.8 percent of selling price, below the 12.4 percent seen during those dark days eight years ago.

How high will incentives go? For automakers, it more a question of how high should they go — a lesson always tempered by the need to boost sales for fear of losing market share to competitors. There’s worrying signs of a slowdown in the marketplace, making this incentive storm an attempt to turn a potential sales slump into a plateau, at least until the money runs out. Automakers can only hope they’re in a good enough financial standing to outlast their competitors.

Despite the incentives, it’s increasingly difficult to move cars off the lot in a timely manner. Compared to the previous September, days to turn increased by eight days, leaving vehicles on the lot for an average of 66. For cars, days to turn increased from 71 to 74, while the once red-hot truck market saw vehicles linger for 59 — an extra four days on the lot.

As for segment popularity, automakers with car-heavy lineups aren’t happy. The midsize car, once a juggernaut, remained the worst-selling segment in September, with its market share dropping by 1.9 percent over last year. Midsize pickups were the bright spot, with its share (3 percent) growing by nearly two-thirds compared to the same month a year prior. Small SUVs continued their upward course, gaining one percentage point for a 5.8 percent market share.

[Imahe: Faris/Flickr (CC BY 2.0)]

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27 Comments on “Race to the Bottom: Incentives at Highest Level Since Recession...”

  • avatar

    I’m thinking part of this is due to the popularity of trucks and SUVs.

    Higher sticker = more incentives (generally).

  • avatar

    “Small SUVs continued their upward course”

    Honda, Toyota, Ford & Nissan = más savvy.

  • avatar
    Gardiner Westbound

    A commodity is worth exactly what a buyer will pay for it, not a penny more. Cash on the hood means the car wasn’t worth the asking price in the first place.

    • 0 avatar

      It’s not like they could constantly keep raising and lowering MSRP to whatever its current market value may be, or how fast they need them gone. With zero down and 1% financing, many buyers may be happy to pay full MSRP. Or to be the 1st on the block with a newly released model and or ‘limited edition’.

    • 0 avatar

      Very simplistic view.

  • avatar
    Car Guy

    I got a great deal on a Focus ST last month. Cars are not selling. The big incentives definitely got me off the fence.

  • avatar

    Since hybrid are not selling these day I got a $35800 MSRP loaded 16 Sonata Hybrid for $27300 after all the discount in August and felt good. Then on October Hyundai put $1500 more on the hood!!!! At least I am still ahead than those who walk in to one dealer and paid whatever the dealer ask (had a few quote me $31000 and said it’s their ‘unbeatable’ price.)

  • avatar

    It’s crazy, the amount of cash they’re putting on hoods. I saw a commercial for RAM trucks advertising 20 percent discounts. Wow.

    • 0 avatar

      I remember reading that Ford made something like $10k per unit on their very successful (but poorly designed) 1990’s Explorers.

      Today’s pickups must have similarly huge profit margins so 20% off still leaves plenty of room for profit so long as the rest of the line isn’t losing money hand over fist.

      But things could get ugly if a real price war ensues among the Big 3 since pickups (and other trucks) support their receding and largely profitless car lines. Does anyone out there think Cadillac sans the Escalade isn’t a money pit?

  • avatar

    I wonder how much of it is making people feel like they are getting a deal.

    I remember a while back JCPenney got rid of its perpetual sales and markdowns and just lowered prices… sales tanked. People will pay the same or more gladly if they feel like they got one over on a retailer. It’s sadistic.

  • avatar

    I suspect that if you dig deeper that you’ll find that many of the incentives come in the form of low-rate loans and lease incentives.

    Automakers want to turn more of the customers into lessees, as they are more likely to be repeat customers and are less likely to haggle. This is more akin to the European model, where prices (even when excluding VAT) are higher.

  • avatar

    Truly an amazing spin on this. ATP is up and that is the bottom line that the MFG is concerned about. Yes incentives are up but the base price is up more than incentives so it is a net win.

    ATP up $533
    Incentives up $490
    So sticker price is up over $1000.

    The percentage of incentives vs selling price is down 1.6 points which is good.

    • 0 avatar

      Kelley Blue Book includes incentives in its ATP calculation.

      ATP is gross, not net. An increase in incentives that matches an increase in ATP adds up to no net increase in net proceeds.

      • 0 avatar

        Bottom line is that incentives as relative to prices are down and that is good for mfgs.

        • 0 avatar

          How is that the bottom line, exactly?

          If ATP rose by $533 but incentives rose by $490, then that would suggest that net vehicle prices are essentially flat.

          • 0 avatar

            The bigger thing is that the ratio of incentive to selling price is down 1.6 points. That is independent of the mix of vehicles that are being sold. 1.6% results in much more case per vehicle than the $43 suggested by the absolute numbers of $533-$490.

  • avatar
    SCE to AUX

    The market is at flank speed; iceberg ahead!

  • avatar

    Thanks, Chrysler, for starting the whole rebate thing in 1974. Kudos to Ricardo, too.

    Lots of money on the hood worked for me, so keep it coming, and I may actually buy another new car someday…

  • avatar

    If the Renegade is this bad how bad will their Range Rover rival be?

    I’d buy a Land Rover every day over a Jeep made by Fix it againTony.

  • avatar

    No way. The incentives were better 6 months ago, or even 11 months ago.

  • avatar

    For giggles I built a 2017 Buick Encore on the site last night. HOLY CRAP – $37,000?!?!? You can option up a Buick Encore to over $37,000?!?!? The same Encore will be worth maybe $22K in 2 years?

    No wonder they have to put so much cash on the hoods – sticker prices are becoming insane.

    • 0 avatar

      But Encores are shiny-pretty! Buick did a marvelous job of making them a democratized Faberge egg.

      Plus, they’re very comfortable for average-sized elderly women and a whole lot easier to drive than the previous generation of middle-class retirees’ Town Cars.

      Buick understands refining the decline. Anything under 40K is a bargain.

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