Sales Down, Incentives Up and Credit Scores Fall, But Not to Worry

Vehicle sales are down, automaker incentive spending is up and some consumer credit scores have fallen.

But no need for handwringing, say Mark Scarpelli and Steven Szakaly, chairman and chief economist, respectively, for the National Automobile Dealers Assn. That trio of apparent negatives needs perspective, they say during an economic briefing with journalists.

NADA predicts light-vehicle sales of 17.1 million this year, following dealer deliveries of about 17.4 million in both 2016 and 2015.

“Sales have been softening, but the overall outlook is strong,” Scarpelli says. “It’s critical to remember we’ve had two back-to-back record sales years.”

Szakaly adds, “Record sales years do not last forever. We’ve seen the sales pace come down, as expected.”    

Some out-there analysts predict annual sales will plummet to 12 million units after 2020, citing the prospects of fewer Americans buying cars, as ride-hailing and car-sharing services proliferate.

But Szakaly says such doom-and-gloom forecasts are “ridiculous” and fail to account for Americans’ propensity for personal-vehicle ownership.

Consumers’ desire to own vehicles is “alive and well,” says Scarpelli, a metro Chicago auto dealer. “We see it every day.”

Increased incentive spending has reached an average of 10.8%, according to ALG. But that doesn’t mean automakers are recklessly throwing money around to spur vehicle sales, say the NADA representatives.

“The rising incentive spending is on sedans,” Scarpelli says, noting the car segment has fallen in popularity as the market demand for light trucks, SUVs and CUVs has increased to about two-thirds of the automotive market.

Szakaly describes incentive spending as “very specific,” adding a time for concern would be if “incentives creep across the board.”

On the vehicle-financing front, “we’ve seen some deterioration in credit scores,” but there’s no cause for alarm there, he says, citing a couple of positive factors.

One is that people who saw their credit scores fall as a result of unemployment now have jobs and consequently the wherewithal to buy vehicles.

“They are entering the car market as they repair their credit,” Szakaly says. The slight increase in non-prime and subprime levels “is indicative of more consumers entering the market rather than indicative of a rising risk, as some have characterized it.”

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