By on January 31, 2018

cars dealer dealership, Image: HappyAlex/Bigstock

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.

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14 Comments on “So Far, 2018 Auto Sales Are Better Than Expected; Thank Dangerously Heavy Incentives...”


  • avatar
    gasser

    Interest rates popped yesterday and the rest of this week is concerned with funding the increasingly voracious U.S. Treasury bond appetite. This means probable rising rates. Does 1/2 to 1% rise in 2018 mean less sales? Does this 1/2 to 1% prediction mean a much bigger pop for sub prime lending? With interest rates climbing up from historic lows, is anyone eager to buy packaged auto loans that go out for 6,7 or 8 years? Is the gradual uptick in gas prices going to add a significant amount to the 2018 cost of driving? I don’t see a prayer for 2018 sales being anywhere near 2017 IMHO.

  • avatar
    PrincipalDan

    Incentives will stay high because automakers will keep fighting each other for the scraps.

    The local Toyota dealer sent me a postcard yesterday advertising 0% for 60 months on the RAV4. And the RAV4 is a model in which they sell everyone they build – and also in a category of vehicle that is very popular with consumers.

    • 0 avatar
      krhodes1

      I’d like to know what percentage of buyers actually qualify for that 0% rate though. It’s a great teaser to get you in the door, but reality might be significantly different. And/or you can get 0%, but you are paying MSRP.

  • avatar
    Felix Hoenikker

    I checked my Credit Union for auto loan rates today. The lowest advertised rates are
    3 yrs – 1.25%
    5 yrs – 2%

    That’s close to free money. Even if rates increase by another 1%, they will still be historically low.

    • 0 avatar
      volvo

      With Credit unions paying 2.5-3.0% on 5 year CDs it is free money if you plan to keep the car 5 years.

      • 0 avatar
        Felix Hoenikker

        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.

    • 0 avatar
      krhodes1

      For sure – my first auto loan in 1988 was at 10%, and that was a GREAT rate on a 3yo car at the time. Second was 8% in 1996 also used. First new car I bought was 6% in 2009, 3% in 2011, 2.5% in 2015, and 1.5% in 2017. Technically 2% for the last one, but I qualify for a .5% discount due to other accounts at the CU.

      On the other hand, savings account interest is so low you might as well spend the money on cars! At least back in the day I made 5% on my paltry savings.

  • avatar
    Prado

    As long as average transaction prices are not decreasing, I would not expect increases in incentives to be an issue for the industry.

  • avatar
    pmirp1

    The economy powered by Trump is humming along just fine.

    Because of that, every segment is thriving. The rebate business is business as usual. I don’t see that changing. Hot cars don’t carry as much, not so hot, do.

    And yet the sales continue at record paces thanks to an economy that is running loud and proud at lowest level unemployment levels for some time (African Americans and Hispanics are running rates of unemployment at lowest numbers ever) with overall rates of ~4.1%.

    With stock market and 401k balances at record highs, auto sales will be humming. These are macro economic forces that won’t change for all of 2018. No matter the interest rates that may go up some.

    • 0 avatar
      jkross22

      Troll gotta troll.

    • 0 avatar
      highdesertcat

      “With stock market and 401k balances at record highs, auto sales will be humming. ”

      For retired people on annuities, those highs often result in those people having to accept a forced payout from their annuities, and thus having to pay additional income taxes for 2017.

      It may also be worthwhile to take that extra lumpsum of cash payout and buy a new car or truck with it.

      And don’t forget, the new tax withholding tables just came out and many working stiffs will see a sizeable increase in their take-home pay starting this Friday, 2 Feb 2018.

      I just looked up the “Who Must File” tables for 2017 on irs.gov and the cut-off is $23,300 for those filing jointly, not counting socsec retirement, VA-benefits, and other non-taxable sources of income.

      For 2018 the cut-off will be even higher for everyone.

      Good deal.

    • 0 avatar
      bd2

      Yeah, cuz this bull market didn’t start under Obama.

      And we (well, maybe not the so-called “fiscal-conservatives”) all know what unpaid for tax cuts and over-deregulation gets us.

      Another recession when the bubble pops.

  • avatar
    TW5

    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.

  • avatar
    Felix Hoenikker

    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.


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