Industry-watchers are worried by escalating incentives, but a better barometer of the auto sector’s health may be transaction prices, which continue to hold ground.
Don’t sweat the incentive activity – at least not yet.
Yes, spiffs are on the rise, and that has set off alarm bells for industry-watchers. After all, no one wants to see a replay of the pre-Great Recession death spiral in which automakers, swamped by overcapacity, were forced to pile dollar after dollar on the hood to move enough metal to keep plants humming, destroying the bottom line.
So it’s easy to see why there is so much focus on incentive levels as an early warning barometer of the industry’s health.
Still, it’s too early to panic.
Incentive spending is climbing from like-2013 levels, according to TrueCar, which projects the August outlay at an average $2,772 per vehicle, up 9.3% from year-ago’s $2,536.
But more importantly, buyers continue to spend more money on each new car or truck they purchase, with average transaction prices increasing to $31,610 in August, from $30,859 year-ago, according to the car-buying service.
ATPs are up for several brands, including Fiat-(3.9%), (1.0%) and, by a wide margin, (12.9%), TrueCar says, and overall are down less than a percentage point from July levels.
Their numbers may vary, but new-car pricing site Kelley Blue Book data shows a similar ATP trend, with onlyand among the automakers it tracks registering a decline in pricing power from year-ago.
In a market where no one buys anything anymore unless it’s on sale, it’s no surprise incentives remain a key tool to drive customers to new-car showrooms. The good news is incentive activity hasn’t reached a point where it appears to be hurting too many bottom lines.
“While it has become fashionable to criticize incentive-spending levels, the reality is the ratio of incentive spending to transaction price this summer is consistent with the healthy industry levels we’ve seen since 2011,” TrueCar President John Krafcik says in a statement. “GM is the poster child here, with their industry-leading average transaction price increase of 12.9% comfortably outpacing a modest incentive increase of 3.5%.”
In other words, chill. For now, anyway.