Auto Industry Resorts To Biggest Incentives Ever To Slow Decline In Sales

Tyler Durden's picture

Submitted by Wolf Richter of WolfStreet

The Last time automakers tried this was in 2009!

In a few days, automakers are going to report their new vehicle deliveries for March. TrueCar, Kelley Blue Book, and LMC Automotive are predicting total vehicle sales slightly above the flat-line compared to March a year ago, though sales were down year-over-year in both January and February.

TrueCar forecasts an increase of 0.2% year-over-year to 1.586 million new cars and light trucks, with retail deliveries (excluding fleet sales) growing 1% to 1.276 million units. J.D. Power and LMC Automotive said on Friday that they expect an increase of 1.9%, to 1.62 million units, with retails sales up 1%, boosted by record incentives.

If sales nevertheless fall, everyone will blame the winter storm that arrived in the winter – “unexpectedly” or something. And it is possible that sales might fall. There was no winter storm in February, which was one of the warmest Februaries on record. Yet, sales in February fell 1.1% year-over year. They edged down in January too. And sales in both months combined fell 1.4% from the same period a year ago.

It’s not like automakers haven’t been trying. They paid out record incentives to accomplish this feat of slowing down the sales decline. In February, the industry in the US shelled out on average $3,587 per vehicle in incentive spending, per TrueCar. It was the highest ever for a February.

We’ll get to the March incentives in a moment. Just a quick word on what transpired in February. The table below shows average incentive spending per unit sold:

Some standouts among US brands:

  • GM clocked in at over $5,125 per unit in incentives. That’s apparently what it took to get its sales to rise 4% year-over-year.
  • Ford, which has been priding itself in its “disciplined approach” to incentives, spent over a grand less, $4,011 on average, and its sales declined 4%.
  • Fiat Chrysler may be beyond help. That’s perhaps why CEO Sergio Marchionne has been so desperately looking for a buyer. FCA spent $4,362 per unit on incentives in February, as total sales still plunged 10% and are down 11% for the first two months.
  • Car sales for GM, Ford, and FCA plunged 23%, 24%, and 26% respectively. While GM and Ford showed gains of 16% and 5% respectively in light truck sales, FCA couldn’t even do that, and its trucks sales fell 7%.

These are averages per unit: At $5,125 per unit at GM, there may be some models with $10,000 in incentives and others with none, depending on what GM needs to move at the moment, based on inventories on dealer lots, production, and profit margins (that range from very fat on high-end pickups to very slim on small cars).

For March, J.D. Power and LMC Automotive pegged incentives at $3,768 per new vehicle sold – the highest ever for any March. The prior record for March was achieved in 2009 as the industry was collapsing. In June 2009, GM filed for bankruptcy.

By these estimates, the incentives in March would amount to 10.4% of suggested retail price, in the double digits for the first time since 2009. These are some seriously desperate incentives!

TrueCar estimates that incentive spending in March rose 13.4% year-over-year to an average of $3,511 per vehicle sold. But this would be 2.1% lower than the desperate incentives in February:

Some standouts:

  • GM cranked up its incentives by 21.4% from a year ago, but dialed it back 4.5% from February.
  • Honda increased incentive spending 27% year-over-year, and increased it 2.9% from February.
  • FCA, which had already been dousing the market with incentives a year ago, increased it another 7% year-over-year, but remained about flat with February.
  • Subaru, lowest on the list with a modest $901 in incentives per unit sold, nevertheless felt it needed to crank them up by 59% from a year ago.

And look at the total dollar amounts spent in March: $5.54 billion! In just one month! GM alone spent $1.3 billion in March.

If GM piles on incentives at this rate three months in a row, it would spend nearly $4 billion on incentives, in just that quarter, just in the US alone. How much dough is that for GM? In Q1 2015, GM reported global net income of $2.0 billion. In Q1 2015, it reported global net income of $0.9 billion. These incentives can eat an automaker’s lunch in no time. And they did in the years before the industry collapsed during the Great Recession.

For consumers in the mood, there’s an old saw: “Good deals are made in tough times.”

But not for automakers. They face another reality: Sales have peaked. The seven-year up-trend has ended. Pent-up demand from the Great Recession has disappeared. Trading is getting more difficult, with falling used vehicle prices and rising interest rates. Subprime lending is facing real hardship. And these enormous incentives are now required just to keep sales from falling more quickly, and to defend market share against other desperate automakers and their incentives.

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directaction's picture

In September, 2017, new vehicle inventories will be monstrous.
Then we'll see record-setting incentives.

remain calm's picture

Recession coming, get ready for the Fed to reverse coarse.

tmosley's picture

Would like to see the price of new cars fall alongside the price of used ones. These prices are outrageous. Cut them by half or two thirds, and demand half down. They will sell, and you won't have many coming back at all.

If you can't make a profit at that price point, go out of business and make space for those that can. No more bailouts, direct or indirect. Time for interest rates to rise to ~market levels. That means 15% at a minimum. Maybe more like 30%.

mkkby's picture

That's some potent shit you're smoking.  Better sleep it off and get back on the psych meds.

jaxville's picture

   I see rates rising to over twenty percent but that will be the culmination of a process.  It won't happen in one year unless some pretty serious wheels fall off the wagon.  Probably witihn five years once the trend for rates is clearly higher. 

      Those who think it can't happen or that the Fed would never allow it don't understand that the ecomomy will always be expendable.  If the choice comes down to preservation of the system or the economy.....

   Rates will one day be in a normal range.  They are not just going to go up to 5% and stop there.   There will be a vast overshoot of what is generally accepted as normal and then they will fall slowly to that value. 

root superuser's picture

"Recession coming, get ready for the Fed to reverse coarse."

They are crashing it. Rates will be raised 3 times more this year.

AR15AU's picture

Yep.. Janet has donned her suicide belt

clade7's picture

Yep!  Few years back, For giggles, waiting for the Wife to get some candles at BedBathandBedamned I went to the nearby dealership to see what the fuss is all about...

 

Asked the guy, "Do you take Cash?"  He said "Get the fuck out of here!  We Finance!"  So I says, "How about Gold or Silver?"...Then he got pissed!  He sneered sarcastically and retorted, "Really Dude...Just Get the Fuck out of here right now"....Possibly it was my 2001 Chevy Prizm that set him on such a low negotiating edge?  Or this is a new Sales tactic?  Intriguing!

 

He did say my trusty and loyal Prizm was worth '5K in trade'..at first...that was odd...I bought Her for $1200 from some old guy 100k trouble free miles ago?  I didnt want to take advantage of the poor car dealer salesman so eggregiously...Like Y'all, I dont mind raping a guy when he deserves it, but this guy was young and probably has a Family...I was raised right and did not feel comfortable taking advantage of him...

 

Still, this was an odd and entertaining experiment..they dont want cash, and they really dont want PM's...yet a 2001 Prizm is worth 5k if a guy just buys a new car and finances it???  I did get a free cup of coffee while I was there, so that was nice...Its probably a good thing I didnt mention Muskrat pelts or a few cords of firewood for a trade?...Although...maybe next time?  For giggles...?

post turtle saver's picture

what you experienced and what others are witnessing is that the compensation plan for sales staff is heavily weighted towards financing the purchase... the aren't getting their bonus based on profit/loss of the sales so much as how many finance contracts they push through in a given sales period...

what we have here ladies and gentlemen is what's called a "mis-incentive"... the OEMs and dealers have set up comp arrangements to actually amplify the very behavior that exposes them to an economic downturn... this is what happened in 2008-2009 and it's getting ready to happen again, likely at the end of this year or Q1 2018...

there will be deals to be had and cash will be king when that time comes, so plan accordingly...

Joe Sichs Pach's picture

Which is nothing like the compensation plans of the 00's refi boom /sarc

post turtle saver's picture

true, there are many similarities...

to provide a simple and verifiable example of what I'm talking about re: auto sales... note that GM full size truck sale incentives currently include the following:

- Finance Bonus Cash ($2000 - Down Payment Assistance): Eligibility: This allowance must be used as down payment on a supported or unsupported finance contract through GM Financial. Supported and unsupported leases are not eligible for this program.

- Finance Bonus Cash ($1000 - Credit Support): Eligibility: Purchase is financed through GM financial using GMF standard retail financing rates. This program cannot be used with any GM supported APR programs. Customer must meet certain credit criteria as defined by GMF. This program is only available for qualifying credit customers with a CB score less than 680.

that last one in particular is a "fog the mirror" incentive... customer has bad credit? we don't care and here's an incentive to get them to sign up and get on the finance treadmill...

so, if you're a responsible person who saves their money and lives within their means, understand that the above incentives are _not_ meant for you - simply, you don't qualify and as a reward for your proper living you get punished with a higher price... if that doesn't make you upset about the current auto sales situation I don't know what will... just like the MBS debacle, super low interest rates and so on you're punished if you're a saver... like I said, it's a mis-incentive and it amplifies exposure to collapse of sub-prime... when it comes down, it's gonna come down hard...

GunnerySgtHartman's picture

so, if you're a responsible person who saves their money and lives within their means, understand that the above incentives are _not_ meant for you - simply, you don't qualify and as a reward for your proper living you get punished with a higher price...

That's when I take my business somewhere else.  There's always another dealer who is willing to do the deal.

I bought the vehicle I have now, a F-150, with Ford X-plan pricing.  There's no better way to buy a new Ford if you're not a Ford employee/retiree.  The price is roughly 1% under dealer invoice and you still get ALL of the available retail incentives, no negotiation needed.  Not all dealers participate in X-plan, so you have to find one that does (which is most of them).

post turtle saver's picture

good point, there's also GM supplier discount (GMSD) available as well...

clade7's picture

Thanks for the explanation PTS!  FWIW, heres a handy little tip the readership may benefit from....

 

I had to replace an exterior door to my garage last month, and of course, you cant haul a new one in a Prizm.....I asked the guy at the Lumberyard what a 'delivery fee' would be...I was thinking maybe $20 or so, since I live within 5 miles of the place......The guy told me $60!  Astounding!  I'm like WTF!?  Is that delivered AND installed?  Being a good financial steward, I declined, and commenced to work the problem..."How to get a door home from the lumberyard?.....Maybe I could cajole another customer out in the parking lot who has a truck to do the drop off??  

 

Then, while standing out there smoking... I thought about that Dealership right there, across the street...all those nice trucks all lined up....So I went over and gently kicked some tires...After a brief interaction with another Lot Sales guy, He let me leave the Prizm and take a nice New Truck for a 'test drive'!  So there you have it...I got my door hauled on over to the house for free!  And a cup of coffee to boot!!  Its like financial magic!  I got a New Truck for some work and didnt have to pay one diddly damn!

 

Yesterday, I bought 40 bags of bark mulch and 6 bags of rock!  Its nice to have a truck available when you need one!...You cant always rely on friends, nor should you...Its just not right...Of course, never mention cash or PMs when attempting to borrow a truck from a Dealer.....always ask about 'financing with No Money Down'....That seems to be the magic words they want to hear...

 

There could be a viable business opportunity here for a plucky lad...taking a new vehicle for a 'test drive' kind of thing and making some side money?  Like Uber?  Except simply hauling shit from the Home Depot for half their asking delivered price?

Carpe Tutti Bastardi's picture

The last time I had to buy a new car (which is abhorent to me) as my 1995 Mazda Millenia,

( bought in '97 with 11,000 miles in showroom condition) which I loved was having engine problems,

I was not allowed to take the 2007 Kia Optima for a test drive WITHOUT the sales person accompanying me. 

Sometimes they even take a facsimile of your drivers license.

GunnerySgtHartman's picture

Yeah, some dealers are forced to do that by their insurance companies ... they've had too many cars damaged during test drives.

The copy of your driver's license also lets them run a credit check while you're out on the test drive.  BTDT

GunnerySgtHartman's picture

The local KIA dealer here has been making bank off of their $4000 minimum trade-in value for years ... people take their barely-running junk vehicles and trade them for "selected new KIAs" thinking they're really getting a deal when the dealer puts "$4000 trade" on the sales contract, but the dealer just marks up the new vehicle price enough to cover the difference between actual trade value and the $4000 and quotes them a payment - the new cars go flying off of the lot.  Sheeple, all of them.

When I go look at cars, one of the first questions I get from a salesman is "Will you be trading?"  My reply: "Don't know at this point."  That shuts down the trade talk pretty quick!

peterk's picture

very nicely put.

A fw years ago a BMW dealer said hed take 10% off for  cash, and said to me no matter where you go   you alwys get a discount fo rcash... but  another place once said  we dont care if its cash  or  finance......  but what you say  seems true,  dealerships maybe get good kickbacks for  finance contracts.

Cash is ALWAYS king,  in good  times and bad, its just that no one has any as they are drowning on debt, so they can let themselves speak  any words in support of cash.

 

Here in AUstralia, they are smarter than you lot in the US and europe,,, they managed to get the  insurance industry to   title cars as a "WRITE OFF"  AUstralia wide, if there is an insurance claim on a vehicle that has  a 1cm scrtach oon it.  A WRITEOFF then cant be registered anywhere in the country as its DANGEROUS due tot that scratch on the bumper.. so this is  a way to get rid of  old and late model car and keep  used car prices high..  Every week  at salvage auctions there are  thousand of cars that a re a write off and are thrown away for  parts only or exported to africa.

So a 2017  Mercedes V12 s600 with a cratch on it is classified as a WRITE OFF, totally

unsafe to drive.. in most cases theres not even a scratch on them, just  DUST from sitting. Basically they are brand new cars.

google  "pickles auction sydney australia", look at salvage... you will find  many  brand new cars titled write offs.

 

kbohip's picture

Interesting.  It seems the Democrats may have talked to the Aussies before they initiated their "cash for clunkers" scheme.  Honestly, out of all the shenanigans Obama was involved in, CFC was the one that pissed me off the most.  For no other reason other than make work (or should I say make finance), tons of viable, decent used cars and especially SUVS were taken off the road that could have provided decent low or no finance transportation to lower or middle income families.  Instead those families convinced grandma to junk her "old gas guzzler" so they could buy a shiny new disposable econobox with only 7 years of payments.

 

Berspankme's picture

I can attest that they dont treat you very nice when you want to pay cash. I have bought 3 new cars for cash and they act like you are trying to fuck them.

Blythes Master's picture

Yep. +1,000

Went to buy a Ford Escape in 2010 for cash, (Veterans Ford, Tampa Fl.) and after the fuckwit salesdouche slid the financing paperwork toward me for the fourth time, I picked it up, tore it into tiny squares, threw it up in the air, and plopped down 35k in cash on the table and said, "Fuck your financing, I have cash right here, right now, take it or leave it."

Stupid faggot got up and walked out. I laughed in his face on the way out and said, " You know, you're exactly what's wrong with this country, trying to fuck hard working men and women with your bullshit sales tactics when someone with cash walks in, you treat us like fucking lepers. And fuck your dealership name, 'Veterans' Ford. I'm a veteran and consider that stolen valor motherfucker!"

We went to a different Ford dealer in Spring Hill where not only did we get the car for cash, I ended up trading pistols with the salesguy. He wanted my Kel-Tec .380 with laser for CC, and I got his Beretta PX-4 Storm 9mm.

In October of 2015, the car got totaled on my 50th b/d when three giant legs of a tree snapped and landed on the hood while I was driving down the road.

Still have the Beretta, tho.' :)

clade7's picture

Beautiful!  I like this kind of stuff!....Some old guy with a stack of cash, skills and understanding,...Simply trying to navigate and educate the New System Kids and get by in this World...

 

For the young guys I work with that kinda tolerate my company, sometimes, I go into this exersize.....  "You know what this Bic Lighter is worth in the right situation?"  'Right now, sitting here on my back deck in comfort, having a few,...Its worth about Nothing, but in the right circumstance, I bet I could get a million dollars for it"....

 

Then I challenge them when they guffaw about this strange notion...'A Million Dollars for a Bic Lighter?'   I commence to tell some stories about how Fragile Humans are ...and about how long you will last if you cant pop a spark...The Bic Lighter has got to be in the top 10 of all great inventions...

 

"Y'all go try making a fire without one, I'll give you $1000 right now if you can make me a fire with what you got in your pocket!""......and they damn sure get the message then...especially if its cold out, and you soak them down with a hose....A Human would give everything they have to keep from freezing to death...a cheapo Bic Lighter would be worth milllions in the right situation...

Blythes Master's picture

First paragraph, Thanks! And that's exactly correct.

As for the rest of your reply, that's why I own 1,000 bic Lighters still in the packages.

GMTA

Selly2k's picture

You got jacked for paying $35 k cash for an escape back in 2010. A nice one now is $25k. You should have financed, maybe they would give it to you for $15 k back then.

Blythes Master's picture

Yeah, that's a typo. I meant to type 25k but I can't edit it now.

No_More's picture

They especially hate it if you take 6+ hours of their time and go through multiple levels of salespeople & mgmt to close the cash deal. Time they spend with you is time they can't use to bilk the all financing customers and it especially irks them if you walk out after they have at least that much time invested in you.

I always bring a big thick book (like War & Peace) for reading while they do their kabuki theater.

Deplorable's picture

Just refinance and pay it off the following week after closing.

laser's picture

I would use the cash to buy gold and silver which I think is likely to go up in $ value more than 4% in the next few years.

Seasmoke's picture

That's exactly what I did last time. I'm friends with the salesman and he said finance guy was pissed. Somehow cost him personally a few 1000s !!!!  .......HA HA.  

Christopher Kringle's picture

I've often wondered what they would do if you played along with their game and financed the car, but for $1 over 8 years.  Problem solved.

Anopheles's picture

I've almost always bought used, and paid in full. But damn, with all the incentives, and ultra low financing, it's pretty tempting if I can't find what I'm looking for used.

chubbar's picture

You lose 20% out the door with a new car. Now, if you are going to run it into the ground then that fact doesn't matter, just the total price, including maintenance, and how many years you get out of it. I tend to run them into the ground.

I would never spend above 20K for a vehicle and I won't ever spend more than a couple hundred a month for a car. I could give a shit what I look like driving it as long as it's a good runner. I haven't bought a new car since graduating college and probably never will again.

dot.dot's picture

Not with Honda.  I just sold CarMax a 2016 Accord I bought a yr ago.  I paid 21,800 and sold to CarMax for an even 20,000.  I thought that was a very strong offer.  I only sold it b/c I decided I would rather have a used SUV and was not completely sold on the new CVT trannies.

Often with Honda's, buying new is the best bet since they depecriate SLOWLY.

I should add CarMax was super easy to deal with.  I had a check in hand 20 mins after pulling my car into their garage.

FreeShitter's picture

I have had two Honda Accords in the past (93 and a 99) kept them for about 7 years each, both with ended with dead transmissions even with low mileage and reg changing of the fluids, never again. Ill stick with toyotas and Fords. Ford trucks and SUV's have been good to me, Toyota makes great cars. Hondas have great resale indeed.

dot.dot's picture

Sorry about your luck.  I buy nothing but Hondas and never had an issue.

If you look on CL you will see TONS of Accords for sale w/ over 100,000 miles and people asking (and getting) 8-10 grand.  Not bad on a 20K car.

Blythes Master's picture

Exactly.

I buy accords and flip them on craig for profits.

Always.

flapdoodle's picture

I buy only used Toyotas because IMHO they make the most rugged automatic transmissions. The fact that their engines and suspensions are also astonishingly rugged and their resale value (when starting used) holds up makes them really cheap to operate means everyone in the family has wheels.

clade7's picture

..So you paid $1800 thereabouts for a years worth of driving...Whats your 'Cost/Mile' total expenses and All In analysis in this experience??  Thats super important...You may have come out way ahead, or way behind...not enough data here to call it......

 

Not intending to bust you balz here...just saying..a guy has to think about all this stuff...I'm working on 4yrs with the $1200 2001 Prizm...Ugly as piss that Nobody would ever steal it, Never washed it once....Insurance is negligible, MPG is in the low 30's...So thats why I am asking...

 

My 'Cost per Mile' is breaking down to @11c/mile....damn near Huffy Bicycle realm, except with a heater and a radio, easier to drive drunk, remote start even!!...If it werent for the tags, the damn thing is practically free transportation!...I bet I could get $1000 sales money out of it even...maybe more if I give Her a fast hose off...

dot.dot's picture

I paid about .20/mile.  It would have been less had I kept the car for ten yrs.  Much less.  However, I had no problem eating that loss to get what I wanted.

My point was you do not automatically take a 20% hit when you drive off the lot.  Had it been anything GM sells the damage would have been far worse and the 20% would likely be a conservative estimate.

I do not understand how CarMax can make a profit re-selling that car.  They will have to find somebody who doesn't understand what deals can be had by using Internet Pricing, I suppose.

83_vf_1100_c's picture

Absolutely but your average schmoe can't scratch up $1,000 for an emergency so...

Mr. Pain's picture

Just don't but old rental cars. Torn up uncarriages.

GunnerySgtHartman's picture

Good old GM, using incentives to buy marketshare again.  Buying marketshare to keep the lines running is one of the (many) things that got them up shit creek ten years ago.  GM just DOES NOT LEARN.

ATM's picture

GM will eventually pay people to take their cars. And why not? They are too big to fail!

topspinslicer's picture

Had an email from a local Toyota dealer offering $4500 on a camary and $4000 on rav4 -- didn't bite but perhaps should have?

johand inmywallet's picture

Nope, I'll just keep buying my used vehicles at bargain prices since there's like a gazillion of them out there and no one can move them except for low, low prices. Lower insurance costs and I can put my own new car smell in it!

blown income's picture

I signed up for a 2009 Ford Sport Trac v6 last year  , to commute and be able to toss stuff in the back , great little truck , pretty good mileage , for 16,000.00

 

Had 48000 miles, real clean , could see where the remote for garage was on the visor. Sticker was in booklet , was right at 32k ..

 

No complaints here !

 

Now , I really do like this new Honda 4 door truck that is out  , sharp ! but I'm sure it's pricey!

 

And , yes, radio here is nothing but car sales ... dealer lots stuffed like a Turkey!

 

 

ZeroPoint's picture

Vehicles are too expensive, with too many feature you do not want or need. Plain and simple. Why does every vehicle need to be 'connected' now? Entertainment centers in every minivan? Brake assist? Park assist? Who needs this shit. Why can't they make a compact pickup anymore? Remember the S-10 and the Ford Ranger?

The auto industry deserves to collapse.

 

 

 

DingleBarryObummer's picture

I like the windows that you roll down.  That way you never need to change a fuse or replace a motor.