Q2 2017 Incentive Outlook Looks Good

incentive dealers cash

I swore off trying to predict what automakers would do as far as incentives and rebates.  It has become horribly unpredictable.  I try to reason these things out because people always ask me when the best time of year is to buy a new car, and the real answer is: when the incentives are the best, but who knows when that will be?

For as long as I can remember, incentives dropped way off in April, but that has not been the case so far.  In fact, many went up from March, which I have never seen before.  The reason is easy to see, the auto industry is trying to keep pace with 2016.  You see, sales being down is bad publicity and causes a drop in consumer confidence.

With the first quarter complete, auto sales are down 1.5% from the end of the first quarter of 2016.  No big deal, right?  Actually, it is.  You see, that 1.5% represents over 60,000 new vehicles in inventory now.  The projections were based on sales being flat from a year ago.  60,000 of anything is a lot, but when you are talking about vehicles sitting on dealers’ lots, that is a large number.  I talk to a lot of dealers, and while there is no panic just yet, you can bet they are scaling back their future orders to balance out inventories.  I can tell you from experience, automakers absolutely hate it when dealers scale back on orders of new vehicles.

So the incentive outlook for April and the second quarter is very good, and that is welcome news for car buyers.  Automakers must help the dealers move inventory to get them re-ordering and keep factories running.  One trend I am seeing is targeted inventory, meaning big bucks on the hood of vehicles that have a particularly high days supply.  For instance, there are huge incentives on certain Corvettes with ceramic brakes.  60 days of inventory is always the target, meaning you take monthly sales times two to keep in stock.  When you miss your sales targets one month, you have two many cars in stock the following month.  For most dealers, sales have fallen short three months in a row.

Then there is the market share aspect of incentives.  Car companies live and die by market share.  While no entity can control the number of vehicles sold overall, they try to control the percentage of sales they get.  Incentives play a big role in this.  Automakers who are heavily invested in sedans are suffering, while those that are weighted to trucks and SUVs are thriving.

It is estimated that incentive spending per vehicle in March 2017 topped $4000, which is comparable to 2009, the year that crashed the auto industry.  That kind of money is chilling to the bean counters at car companies, and it should be.  There are only two choices when sales slow down…spend more in incentives or reduce production, meaning cut back on building vehicles.  Reducing production is the smartest strategy, but the one that automakers resist the longest.

It is too early to know if 2017 will be an up year in sales, but with a fourth of the year behind, it is clear that if 2017 is going to be flat or up from 2016, it is going to take big incentives.  If you are thinking of buying a new vehicle this year, the timing is good.

Photo Credit: chairoij/Shutterstock
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