Incentives to Decline in February as OEMs Adjust Production

Inventive spending may have turned the corner and be on the decline in 2018 as manufacturers lower production amid forecasted slower sales, according to a J.D. Power report.

The drop is small at just $14 lower to $3,840 in incentives through the first three weeks in February. However, the shift is significant as it could mark the first year-over-year decline in incentives in more than four years, said Thomas King, senior vice president of the data and analytics division at J.D. Power.

“The decline in spending is particularly notable given that incentives have risen consistently since 2013,” he said in a statement. “In December 2017, for example, spending rose by over $400 from the prior year.”

Similarly, incentives rose in January as well to address “languishing” 2017 models, according to an earlier Edmunds report. Incentive spending increased 5% year over year in January to $3,657, which also represents a 36% increase from five years ago.

“The industry continued to do a good job of addressing aging inventory in January, but it remains an issue heading into the rest of 2018,” said Jessica Caldwell, executive director of industry analysis at Edmunds. “The only time the proportion of prior model-year vehicles was higher in January was in 2009, after sales collapsed due to the recession in the closing months of 2008. The good news is that automakers are adjusting their product roadmaps to avoid making the same mistakes they made in 2017. As we move further into the year, we expect to see the industry continue to right-size.”

The drop in incentives is largely due to a $450 month-over-month drop on domestic trucks and SUVs. The average new-vehicle transaction price also rose to record highs for the month to  $32,237 compared with $31,302.

However, it’s still unclear whether this incentive drop will continue as it’s largely tied to a drop in marketshare for SUVs and trucks, which could rebound.

“While rising transaction prices for the industry overall and reduced spending in some segments of the market is a positive indicator for the long-term health of the industry, sustaining lower levels of incentives will be challenging,” the report stated.

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