This Week in Car Buying: Labor Day sales loom large after weak August; Incentives on 2017s in full swing; Cars still pricier; Lexus leads in CPO
The importance of the Labor Day sales events loom larger after industry sales dipped in August. A 3.5-percent decrease in volume over year-earlier numbers cast doubts that automakers will break last year’s record setting totals and makes it even more likely that the trend to heavier incentives will continue not only over the holiday weekend but through the closeout of the 2016 model year.
Cars continue to lag, while trucks, crossovers and SUVs continued to do well as typified by the numbers from Fiat Chrysler Automobiles. FCA was the only Detroit automaker to post positive numbers for the month, a 3.1-percent gain in volume. But that was largely due to an 11.9-percent increase in Jeep sales while Chrysler saw a drop of 22.3 percent. Ford posted a decline of 8.8 percent, while General Motors sales were off by 5.2 percent. GM said part of the decline is due in part to a decision to cut less profitable fleet sales from its mix and concentrate more on retail volume.
Import brands were not immune to the slowdown as Toyota (-5 percent), Honda (-3.8 percent), Nissan (-6.5-percent) and Mazda (-13 percent) all posted declines. Volkswagen also suffered a 9.1 percent decrease in sales. The only bright spot was Subaru, which boasted a 15-percent increase over August of last year and for the first time topped 60,000 sales in a month.
Industry observers will be watching the Labor Day sales events closely for signs that sales have plateaued and may in fact be starting a decline. A successful weekend could, on the other hand, could pump new life into sales and propel the industry to near record levels. GM’s chief economist Mustafa Mohatarem, is bullish, telling Automotive News that “all economic factors continue to point toward a strong second half of the year an another potential record year for the industry. We think the industry is well positioned for a sustainable high level of customer demand.” This weekend could well make or break that prediction.
Incentives on 2017s crank up
While the Labor Day weekend is usually the time to find a deal on 2016 model year vehicles, shoppers will also find a wide range of cash rebates and lease deals on 2017s to choose from as well. FCA has expanded the spiffs on its newest models to include the 2017 Dodge Durango and Journey with incentives ranging from $750 to $2,000, while Jeep is offering $500 to $2,250 on the 2017 Cherokee and $500 to $1,500 on Compass, Patriot and Grand Cherokee. Ram is also offering $500 to $2,250 on its 2017 model year 1500 pickups.
Ford will continue its program of $500 to $2,000 on the 2017 Expedition, $500 to $1,500 on Fusion Energi; $250 to $1,500 on the Fusion Hybrid, $250 to $1,000 on Escape and Explorer and $250 to $750 on the 2017 Mustang and standard Fusion.
GM is offering cut-rate financing on some 2017 models, with cash available only on Impala and Volt ($1,000), Equinox and Traverse ($250-$750), Malibu ($500) and Cruze ($250). In addition to cutting fleet sales, GM is more disciplined when it comes to offering generous incentives than its crosstown rivals.
Among imports, the Korean makes have several 2017 incentive programs including $500 to $1,000 at Hyundai on the Elantra and Santa Fe, $750 to $1,000 on the Santa Fe Sport and $500 to $1,500 on the Sonata and Tucson. Kia is offering $500 to $1,000 on the 2017 Forte, Sorento and Sportage. Toyota has $500 to $2,000 on 2017 Camry models including hybrids and $500 to $750 on Corolla iM, Prius, Prius v, RAV4, Sienna, Yaris and the Toyota 86 sport coupe. Audi is currently offering $3,000 on its 2017 Audi A8 and S8 and $500 on the Q5, while VW has $500 on all its 2017 models.
Although sales are down and transaction prices have remained flat since July, the current average at $34,143 still represents a 2.6-percent (or $871) increase over year ago levels. The biggest gains were at General Motors, which saw average prices climb nearly 5 percent over the previous August, thanks in part to the introduction of the 2017 Cadillac XT5, which is selling for 8 percent more on average than the SRX it replaced. Also Chevy saw a gain of 6-percent in average transaction prices, largely on sales of its Silverado. FCA was up 3 percent due to launch of the 2017 Chrysler Pacific, which is selling for 9 percent more than the Town & Country model it replaces.
Still, there are indications that slowing sales and climbing incentives may soon have an impact. “Incentives have steadily climbed and the ratio of incentive spend to average transaction price is at its highest point since 2009,” said Tim Fleming, analyst for Kelley Blue Book. “As we near or pass the peak of new-car sales this year, each automaker will need to moderate production and incentive levels accordingly to maintain residual value strength moving forward.”
This means that if incentives continue to grow, buyers will be getting better deals on new vehicles, but they may also find that the resale value will suffer down the road as a result of high discounting.
Lexus leads in CPO
With its L/Certified program for selling pre-owned vehicles, Lexus has put together a successful program that converts shoppers into buyers. A survey conducted for Automotive News found that 69 percent of the prospects looking into buying a Certified Pre-Owned vehicle from Lexus turned into buyers. Another 20 percent bought new models, while 11 percent purchased non-certified used units. Lexus is one of the first brands to get all its dealers to participate in the factory-sponsored CPO program. Across the industry, 57 percent of the survey participants who shopped for used cars bought CPO vehicles.
FCA’s Ram truck division was able to convert only 49-percent of their shoppers into CPO buyers, but also it did the best among brands in putting those used vehicle intenders in new vehicles at 43 percent. Subaru was also effective in converting pre-owned lookers into new car sales with a 41 percent rate.
The 2017 Nissan Sentra SV Special Edition has been added to the Japanese automaker’s compact sedan lineup, which returns for the new model year with virtually no change in price.
Boasting 325 horsepower and all-wheel drive, the 2017 Ford Fusion Sport injects a high performance into its mainstay family sedan. Read more in our First Review here.
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