February incentives highest since 2009, at average 10% off sticker
March 10, 2017
To maintain U.S. auto sales at the present high volume, give or take a few percentage points, analysts said automakers are resorting to an average discount of about 10 percent off suggested retail price.
That’s the highest level of incentives for the month of February since 2009, according to a joint forecast by J.D. Power and LMC Automotive. Incentives can take several forms. Cash back is the most obvious, but low-interest loans and discounted leases also are common.
Discounts were high in 2009 because the U.S. auto industry was desperate to make a sale and dig itself out of a hole. In February 2009, incentives averaged 11.2 percent of manufacturer’s suggested retail price, the companies said.
General Motors and the former Chrysler Group went through bankruptcy restructuring in 2009, while U.S. auto sales hit the lowest level per capita since World War II. Ford had a close brush with bankruptcy but avoided it by going into debt before credit markets froze.
The situation today is a mirror image. Discounts are high and the automakers are anxious to make a sale, because volume is at a peak.
The industry is using incentives to stay there, and of course individual companies resort to incentives for tactical reasons, to fight their rivals, and to unload slow sellers.
The average incentive last month was about $3,748, an increase of about 9 percent from a year ago, J.D. Power and LMC Automotive said.
That sounds like a lot, but transaction prices are also on the rise, and that’s a positive sign for the industry. The average new car or truck had a transaction price of $31,483, a record for February, the companies said.
Still, over time, the high level of incentives represents "a fundamental threat to the long-term health of the industry," said Deirdre Borrego, senior vice president of automotive data and analytics at J.D. Power, in a written statement.