So Far, 2018 Auto Sales Are Better Than Expected; Thank Dangerously Heavy Incentives

Matt Posky
by Matt Posky
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.

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  • TW5 TW5 on Jan 31, 2018

    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.

  • Felix Hoenikker Felix Hoenikker on Jan 31, 2018

    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.

  • FreedMike This article fails to mention that Toyota is also investing heavily in solid state battery tech - which would solve a lot of inherent EV problems - and plans to deploy it soon. course, Toyota being Toyota, it will use the tech in hybrids first, which is smart - that will give them the chance to iron out the wrinkles, so to speak. But having said that, I’m with Toyota here - I’m not sold on an all EV future happening anytime soon. But clearly the market share for these vehicles has nowhere to go but up; how far up depends mainly on charging availability. And whether Toyota’s competitors are all in is debatable. Plenty of bet-hedging is going on among makers in the North American market.
  • Jeff S I am not against EVs but I completely understand Toyota's position. As for Greenpeace putting Toyota at the bottom of their environmental list is more drama. A good hybrid uses less gas, is cleaner than most other ICE, and is more affordable than most EVs. Prius has proven longevity and low maintenance cost. Having had a hybrid Maverick since April and averaging 40 to 50 mpg in city driving it has been smooth driving and very economical. Ford also has very good hybrids and some of the earlier Escapes are still going strong at 300k miles. The only thing I would have liked in my hybrid Maverick would be a plug in but it didn't come with it. If Toyota made a plug in hybrid compact pickup like the Maverick it would sell well. I would consider an EV in the future but price, battery technology, and infrastructure has to advance and improve. I don't buy a vehicle based on the recommendation of Greenpeace, as a status symbol, or peer pressure. I buy a vehicle on what best needs my needs and that I actually like.
  • Mobes Kind of a weird thing that probably only bothers me, but when you see someone driving a car with ball joints clearly about to fail. I really don't want to be around a car with massive negative camber that's not intentional.
  • Jeff S How reliable are Audi? Seems the Mazda, CRV, and Rav4 in the higher trim would not only be a better value but would be more reliable in the long term. Interior wise and the overall package the Mazda would be the best choice.
  • Pickles69 They have a point. All things (or engines/propulsion) to all people. Yet, when the analogy of being, “a department store,” of options is used, I shudder. Department stores are failing faster than any other retail. Just something to chew on.