Incentive Spending on the Rise As More Vehicles Loiter on Lots

Steph Willems
by Steph Willems
incentive spending on the rise as more vehicles loiter on lots

May isn’t shaping up to be a sales winner for automakers doing business in the United States. Like past months in the current calendar, volume is predicted to decline, year over year, with the annual tally for 2019 expected to fall for the first time in years.

That’s according to a joint report from LMC Automotive and J.D. Power. Backing up the claims is a reversal of the recent trend of declining incentive spending, plus the fact that new cars are spending an increasing number of days sitting on lots. The most since the recession, in fact.

As reported by Aftermarket News, the forecast predicts May sales will fall 2.1 percent — a fifth consecutive month of year-over-year sales declines for an industry that eked out an unexpected sales gain of 0.3 percent in 2018. Year-to-date volume is expected to decline 5.2 percent through the end of May.

Unlike last year, total volume is expected to decline in 2019, with LMC forecasting 16.9 million new light-duty vehicles sales in the U.S. — a 2.5 percent drop.

“May is one of the highest-volume months of the year and its performance typically indicates how the year will play out,” said Thomas King, senior vice president of the Data and Analytics Division at J.D. Power. “The expected sales decline in May, coupled with weak sales year-to-date has left the industry with rising inventories of unsold vehicles. Manufacturers are responding with larger discounts to take advantage of the Memorial Day weekend, which is one of the busiest car-buying periods of the year.”

While incentive spending remains at a reasonable amount (9.1 percent of MSRP, on average), the current month’s figures show a change from the previous ten months: per-vehicle spending is up, albeit modestly. The average incentive spend rose by $25 per vehicle in May to $3,722.

The rising need to stimulate sales through discounts can be seen in how long vehicles linger. According to the report, new vehicles sold this month spent an average of 74 days on the lot — the highest figure for May since the unlucky year of 2009. The number of new vehicles spending 90 days or more on the lot is also on the rise, with May’s figure coming in at 29 percent. A year ago, that figure was just over a quarter of all vehicles. Fleet sales are expected to rise 1.9 percent compared to the same month last year.

Fueled by the growing popularity (and unavailability) of vehicles priced under $30,000, average transaction prices continue their upward climb, filling OEM coffers as new car sales drop. A record May ATP of $33,457 is expected to be set at the end of the month. Also, pre-owned inventory is tempting buyers in ever-growing numbers. The forecast predicts used vehicle sales will rise 5.9 percent, year over year, by the end of the month.

[Image: Honda]

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  • TomLU86 TomLU86 on May 29, 2019

    @gtem 1. How much have you spent in REPAIRS (not maint or tires/brakes) on your Camry? 2. If it had warranty, how inconvenient has it been? If less than $500, and no inconvenience, keep the Camry. Yes, as you noted the ride will degrade, it will get more squeaks and rattles. I DID put the money into a plain, but very reliable, 2011 Malibu. Between 92k and 97K, I put brakes (1st set), and flushed radiator and trans (I paid the dealer to do this stuff, he was fairly competitive and had not annoyed me during routine maintenance by trying to upsell me). I decided that Malibu was plain and old, and about a year after this work, with 102k, I got a certified used Regal. NICER and NEWER (and since my GM Epsilon Malibu was so bulletproof, with only broken...driver seat springs, $300 in 102k), I figured that, except for the turbo engine (question mark), the Buick would be equally trouble-free. It's just a newer Malibu... And Consumer Reports loved it. I test drove a new one and liked it. SO, why not. I bought a "Certified Used" I really like the way it drives. It has better A/C (the Malibu's biggest shortcoming). More power than I need. "Certified Used". With a "Bumper-to-Bumper Limited Warranty". That contradiction has probably permanently debased "Certified Used" for me, as the Regal, from 25k to 45k, while not a lemon, has required some pricey repairs (2 wheel bearing--warranty paid, and FOUR shocks/struts--warranty did not pay, but apparently I shamed dealer into doing it for $400, vs $2000). The vanity mirror on the driver side was either broken when I got the car, or broke. Probably the 1st or 2nd time I flipped it. THey refuse to fix that at no charge. So my experience is, if you're happy with your car, keep. I was content. My Malibu probably would have needed new struts/shocks had I kept it. It would need another headlamp (I will never replace a headlamp that requires removing the bumper cover again. Ever. I'll pay some one). Perhaps an expensive repair. But maybe not. I'll never know if my decision paid off financially. I do think new cars have a lot of stuff that will break down...but it gets better. For example, power windows: That's an expensive repair, but they seem to be holding up much better than I remember (I've fixed in 2 cars, a 85 Ford and a 97 Pontiac) I wish I could buy a "new" 85-86 Golf GTI. With just a radio. No A/C. No sunroof. No options. By now, they would be pretty reliable.

  • Bd2 Bd2 on May 29, 2019

    As of April 1, the manufacturers in the best shape when it came to inventory on the lots was Subaru, followed by H/K. Nissan (surprisingly) was in better shape than had expected; guess their plan to cut excess inventory has been working.

  • MaintenanceCosts This truck could go plenty farther (assuming good basic maintenance) but the price:remaining life ratio still makes me gag a bit. The used truck market remains overheated and the price is probably market correct, but these are the sort of prices that would make me prefer to buy a new truck if I could afford it.
  • Jeff S I ignore the commercials. Never owned a Mazda but I would definitely look at one and seriously consider it. I would take a Honda, Toyota, or Mazda over any German vehicle at least they are long lasting, reliable, and don't cost an arm and a leg to maintain.
  • GregLocock The predictable hysteria and repetition of talking points in the meeja is quite funny. it does not divide Oxford into six zones. it restricts access at 6 locations , one on each road, to reduce congestion in the town centre. Florence, which faces the same issue, traffic and narrow historic streets, lined with historic buildings, simply closed the entire town centre off. Don't see anybody whining about that.
  • Jeff S I have rented from Hertz before and never encountered this but if I had I would sue them. Would not want a gun pointed at me and thrown in jail for renting a car.
  • Arthur Dailey I did use a service pre COVID to get the pricing that the dealers were alleged to have paid the manufacturer. It also provided 'quotes' from multiple dealers .