Incentives offered for new-vehicle purchases increased last month amid inventory buildup and ahead of the 2024 sales close, according to vehicle valuation and information source Kelley Blue Book.
The trend continued in October, with an average transaction price (ATP) of $48,623. Sales incentives were 7.7 percent of the ATP, up more than 60 percent from a year back as automaker competition heats up.
It is the “season for automakers to make their final push for 2024 sales,” Cox Automotive executive analyst Erin Keating said, according to the statement.
“While some automakers focus on managing production, many will likely maintain or even increase their seasonal incentives to attract buyers. With competition intensifying, these strategies will be crucial in maintaining market share and driving end-of-year sales,” she said.
Since 2022, new-vehicle incentives have been rising, with eight mainstream auto manufacturers offering incentive packages valued, on average, at more than 10 percent of ATP.
The incentives offered by Stellantis’s four domestic brands—Chrysler, Dodge, Jeep, and Ram—were higher than the industry average as the company sought to unload excess inventory.
The highest incentives were offered by Ram, while Toyota, Porsche, Cadillac, and Land Rover offered the lowest.
Segment-wise, incentives were highest in the SUV category, followed by full-size pickup trucks, and midsize SUVs.
US Car Market
Amid the inventory buildup, dealer sentiment has dipped. In the third quarter, automobile dealers continued to view the market as “weak,” according to the Cox Automotive Dealer Sentiment Index (CADSI). The index dropped to 40 from 42 in the second quarter.The profitability index of independent dealers hit the 30 level, the lowest point since the pandemic, suggesting that the majority view profits as being weak.
“Dealer profitability is one of the central measures in our quarterly survey, as it showcases the core strength of the business,” said Jonathan Smoke, chief economist at Cox Automotive, in a September statement.
“And the profitability index has generally declined for three straight years, particularly for independent dealers. Most dealers feel their profitability picture is weak, and that is likely impacting many sentiment measures, dragging the overall survey scores lower.”
Another proposal was to allow small businesses to deduct up to $1 million in equipment purchases from their taxes, double the current $500,000. These decisions could help drive up demand for vehicles.
For the auto sector, this could mean the Environmental Protection Agency and National Highway Traffic Safety Administration may develop rule-making proposals much faster.
Many auto lenders can cut yield spreads by roughly a point, which they would be willing to do “if they feel better about the economy and loan performance,” it said.