Although auto sales are flattening after some record-setting of late, automakers likely will not go nuts by laying on incentives to spur consumer buying, an industry economist says.
“Incentive activity went up in September around Labor Day, but I remain relatively hopeful (automakers) won’t go crazy with it,” says Tom Webb, chief economist at Manheim Consulting.
That hasn’t always been the case. A decade or so ago, some automakers had laid on the incentives – from cash on the hood to sweetheart lease deals. That propped up sales short-term but also caused financial losses and lowered residual values.
A rehabilitated and downsized industry came out of the recession with a greater discipline for matching production to demand, therefore eliminating the need to slap on incentives to push inventory.
“Overall, manufacturers have done well” by not over-incentivizing products, says Webb discussing new- and used-car market trends in a conference call. “It remains my hope and belief manufacturers will not do things to reach an artificial high (in annual sales).”
Dealers sold and leased a record 17.4 million light vehicles in the U.S. last year. WardsAuto predicts about the same performance this year, with sales possibly increasing slightly. Webb’s advice to the industry: “Don’t fight the plateau.”
Automaker incentive spending averaged about $3,400 per vehicle in August, up about 7.8% from a year ago, according to TrueCar. That ranged from about $1,000 for Subaru to $6,700 for BMW.
During his quarterly teleconference with analysts and journalists, Webb touched on other industry topics. Those include:
- U.S. economy. The country is seeing “slow growth with an unhealthy disregard for the downside risks.”
- Labor. Employment levels are high but it is not “robust employment,” meaning many people are working for relatively low wages.
- Credit markets. Potential risks lie not in auto lending but in the global financial markets. “Although we are seeing aggressive auto lending, I would not call it stupid lending.”
- Used vehicles. “There are a lot more opportunities for dealers and lenders on the used side than on the new side,” he says, noting an increase in the current Manheim Used-Vehicle Value Index.