U.S. sales slip, but so do incentives

Toyota fleet sales got a boost from the redesigned Camry.

The automotive industry may be learning from past mistakes.

As U.S. new-vehicle sales decline to start the year, incentives also have gone down slightly, with automakers largely avoiding the temptation to slash prices when demand fades.

On average, incentive spending per vehicle in February fell $65 compared with the same period a year ago, according to J.D. Power PIN data, even as overall sales dipped 2.3 percent.

That’s a stark contrast from the last market downturn, when automakers tried to artificially prolong the good times by throwing cash on the hood, leading to bloated inventories and lower profits. Even during the past few years of record sales, automakers routinely boosted discounts by hundreds of dollars a month, said Mark LaNeve, Ford Motor Co.’s vice president of U.S. marketing, sales and service.

“This is really a change from what we’ve seen most of the last three years,” LaNeve said last week. “Almost uniformly, the industry has shown good discipline. I anticipate there’ll be more merchandising [in March], but I think within the framework, we’re not overreaching to buy volume and share.”

There were some outliers. Higher fleet sales helped Toyota Motor Sales U.S.A. increase sales in February, partially because of orders for the redesigned 2018 Camry, and Lexus upped incentives to keep up with luxury-brand competition on leasing and financing deals, said Bill Fay, the company’s senior vice president for automotive operations.

Michelle Krebs, senior analyst at AutoTrader, said automakers are mostly opting for targeted incentives in specific segments vs. widespread discounts.



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That discipline stems in part from the higher prices customers are paying. Kelley Blue Book estimates the average transaction price for light vehicles in the U.S. was $35,444 in February, up $722 from February 2017.

Automakers’ willpower, however, will be tested more this month, as the spring selling season gets underway.

“January and February are by no means bellwethers for how the year will go, because they’re such low-volume months,” Krebs told Automotive News.

General Motors and FCA US will be selling down their pickup inventories to prepare for redesigned models, and Japanese automakers will be trying to boost sales as they close the books on their fiscal year, which ends March 31.

Perhaps more intriguing, Krebs said, is whether the February sales declines in the normally robust pickup and SUV segments become a trend.

Full-size pickup sales fell 8 percent last month, while large SUVs dropped 8.8 percent, according to the Automotive News Data Center.

“We’d seen this weakness in cars, but this time we saw some spotty weakness on the utility side and then in trucks,” Krebs said.

The second half of the year will likely be stronger for pickups, she said, but drops in the utility segment could continue as a record number of vehicles coming off lease compete with new-car sales.

Other wild cards could come from the federal level.

The Federal Reserve is likely to continue raising interest rates, and the tax cuts enacted in late 2017 have yet to be realized. Last week, President Donald Trump said he would impose import tariffs of 25 percent on steel and 10 percent on aluminum, which could add some pressure on sales.

After seven years of post-recession gains starting in 2010, sales have risen in just three of the last 14 months. U.S. sales are now down 0.7 percent this year through February after falling 1.8 percent in 2017.

“Market conditions have changed substantially since the record of 2016,” Charlie Chesbrough, senior economist for Cox Automotive, said in a statement. “We continue to expect marginal declines in new-vehicle sales compared to 2017, as payment affordability pushes many consumers to consider pre-owned vehicles.”