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New cars are being discounted at the highest levels ever

October 21, 2016
After a blockbuster year for new-car sales in 2015, growth in the auto industry has slowed in 2016. U.S. sales in August for GM and Ford were down 5.2 percent and 8.4 percent, respectively, compared with the same month in 2015. But automakers aren’t accepting the downturn passively: To juice sales in September, incentive spending was at the highest levels ever.
 
According to a J.D. Power report, automakers have been trying to boost sales by increasing incentives significantly. The average incentive in September reached a record high of $3,923 per unit. The beats the previous peak of $3,753 in December 2008 — back when the Great Recession was kicking into full effect, the economy retrenched dramatically, and dealerships were particularly desperate to move vehicles off their lots.
 
Even with increased discounts, however, retail sales of new cars were on pace to be down 1.3 percent through September 2016, compared with the same period a year ago — but that’s against a record-setting September 2015.
At first glance, car buyers might assume that the record-high incentive levels mean that right now is a terrific time to scoop up a new vehicle at a discount. And indeed, there are some great deals to be had. 
Edmunds.com recently pointed to dozens of cars that can be leased for $199 per month or less.
 
What comes as a surprise, though, is that while the discounts are high, so too are the final purchase prices being paid by buyers. The J.D. Power study noted that the average retail transaction price for a new car was $30,665, an all-time high for the month.
The main explanation for why is that drivers today are especially likely to skip affordable small sedans and fuel-efficient hybrids and subcompacts in favor of SUVs and trucks.
Nearly 61 percent of new-vehicle retail sales in September were trucks (SUVs included), according to J.D. Power. That matches the all-time high for trucks as a percentage of all sales, set just a couple of months ago in July. 
Pickup trucks alone accounted for 16 percent of all sales in September. Because these trucks have much higher sticker prices than their smaller commuter car counterparts, they can be more heavily discounted and yet still result in high transaction prices for dealerships.
So even as overall sales are going flat and discounting is on the rise, "the numbers do not reflect a significant weakness or risk" for the industry, saidn Jeff Schuster, senior vice president of forecasting at LMC Automotive.
"In absolute terms, the industry is performing at an exceptional level," J.D. Power senior vice president Deirdre Borrego noted. "While sales have fallen slightly, they are at near-record levels and transaction prices are at all-time highs."
 
 

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