This Week in Car Buying: Price war looms; Hatchback renaissance; Millennials like cars and leasing; Cadillac's dealer body diet

By Matt DeLorenzo on September 30, 2016 7:00 AM

Last week we told you about the reluctance of manufacturers to raise prices and the fact that there seem to be more incentives on 2017 models earlier in the sales cycle. With the new model year officially getting underway, the plateau in sales has some thinking that an all-out price war may soon erupt even though the industry is still selling cars at nearly record levels.

Estimates for 2016 calendar year range from 17.3 to 17.5 million units, nearly the same as last year’s record which hit almost 17.5 million. The market is expected to cool somewhat in 2017, but still produce sales on the order of 16 million plus.

According to Bloomberg, John Mendel, head of Honda’s U.S. sales, said he’d be satisfied if volumes held at or slightly below current levels. “Give me 16 and a half million all day long,” he told the business news outlet, adding: “That’s good business and a good industry.” But Mendel also fears that discounting and incentives portend a price war breaking out, citing the fact that sales spiffs have grown about 12 percent this year through August, according to Autodata. Transaction prices have reached new highs—Kelley Blue Book pegs the average above $34,000—but the amount of incentives has also reached about $3,000 per vehicle.  

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Even though rebates are rising, shoppers have to be sharp. Hot segments, like crossover SUVs, and redesigned models are less likely to be incentivized. Honda, which has introduced revamped versions of its Pilot and Civic, new entries like the HR-V and freshened versions of its Accord, has actually decreased its incentive spend by 22 percent.

Other makers, like General Motors, are trying to curtail rebate spending and fleet sales to concentrate on higher margins. GM’s strategy for the balance of the year is to cut fleet shipments to 21 percent from 26.5 percent three years ago. The firm estimates that its average transaction price has increased by about $4,000 over that period, from $31,000 to $35,000.

The hatchbacks are coming  

The Paris Motor Show is getting underway and one of the trends of the show is the shift not away from sedans to SUVs, crossovers and hatchbacks. The big drop in sedan sales in August is just one sign of this change, but also, a number of European makers are also beginning to introduce a number of crossover SUVs that are finding favor abroad.

Automakers also believe that crossovers in the U.S. are conditioning buyers to accept more liftbacks and hatchbacks and two new compact hatches were recently introduced, the 2017 Honda Civic, which will be built in England and exported to America, and the 2018 Hyundai Elantra GT, which debuted in Paris as the i30 hatchback and is expected to arrive here in U.S. guise by mid-2017. The new Hyundai Elantra GT shares styling cues with the recently redesigned sedan version of this compact entry, but will be pitched at a more sporty audience that may be shopping vehicles like the Ford Focus ST and Volkswagen GTI.

To boost the appeal of the existing 2017 Elantra GT -- which opens at $19,635 for a 6-speed manual-equipped model and $1,000 more for an autoshifted version including destination – Hyundai has introduced a new Value Edition. It retains the GT’s 173-horsepower/2.0-liter 4-cylinder but adds 17-inch alloy wheels, leather upholstery, a leather-covered steering wheel and shift knob, power driver’s seat, proximity key with push button start and heated front seats for an extra $1,650, which reflects a $1,000 saving.

Also: Class of 2017 - New Cars Ready to Roll

Millennials love cars, leasing

Conventional wisdom that millennials love their smartphones more than cars or are willing to forgo owning their own vehicles in favor of mass transit is proving to be overblown according to recent studies. Dealertrack, which is part of KBB’s parent, Cox Automotive, has found that consumers aged 18 to 34 make up 35 percent of auto loan originations. That number is expected to grow as they are exposed more to leasing and other alternatives to keep monthly payments low.

“What we have heard from the broader market is that monthly payment is an important variable to finalize the deal for a consumer,” Jason Barrie, Dealertrack vice president of market performance, told Automotive News. This drive for lower payments is seen in the fact that average loan terms for the cohort has grown from 68.9 to 70.5 months for new vehicles over the past four years. Leasing, which often results in a lower monthly payment, has grown from 20 to 27 percent among the group.

“Millennials are experiential buyers,” Barrie said in the interview. “Leases could be a good option because it is short-term; there isn’t a sense of ownership.” Likewise, he observed that since many in this generation are just starting out and don’t necessarily have established credit histories, there is a higher penetration of subprime loans, which require higher interest rates because of the risk.

Also: Kelley Blue Book Best Buy Awards of 2016

Cadillac’s dealer body diet

As GM’s luxury division recasts itself to take on European rivals like Mercedes-Benz, BMW and Audi, it is looking to streamline its 925-franchise dealer body to bring the distribution system into line with the competition. As a result, it is offering buyouts of as much as $180,000 to its 400 smallest stores, according to Automotive News.

While Cadillac president Johan de Nysschen said the program isn’t designed to eliminate underperforming dealers, he did stress that it is a way of compensating those franchises that may not be committed to upgrading facilities to participate in the division’s Project Pinnacle, which is designed to upgrade Cadillac’s buying and ownership experience. Only six of the dealerships eligible for the offer are exclusive points, while the rest are paired with another make. Parts of the new requirements are for a separate showroom and experience exclusive to Cadillac.

The rundown

Check out the new This Week in Car Buying Podcast here.

Now that we’ve driven the Smart ForTwo Cabriolet comes word that the electric version of the tiny city car, the 2017 Smart ForTwo Electric Drive Coupe and Cabrio will make its debut in Paris.

Also making the scene in Paris is a new V8 version of Ferrari’s formerly V12-only shooting brake. The 2017 Ferrari GTC4Lusso T bows with the same engine offered in the Ferrari California T.

While we’re talking sports cars, the 2017 Porsche Cayman and Cayman S are reaching U.S. showrooms. We get a chance to put this new coupe through its paces in this First Review.

In the market for a new car? Explore these useful tips on how to get the best deal:

Kelley Blue Book’s Complete Guide to Incentives

All you need to know about leasing

Which dealer services are right for you?

What to look for in your next economy car

Ten insider tips for new car buying


 

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