This Week in Car Buying: Sales drop; Incentives down, prices up; Used truck market to heat up; Dallas dealer's luxury subscription service
The winter doldrums have hit the new vehicle market as sales slumped by 2.3 percent over a year-earlier figures. Sales are also down slightly month-over-month as manufacturers pull back on some incentives and adjust their expectations for a more difficult market ahead in which rising prices and interest rates loom.
A potential silver lining in the days ahead is the impact of recently enacted tax cuts. “The impact of tax reform and tax refunds aren’t being felt fully by consumers yet," Mustafa Mohatarem, GM’s chief economist, told Automotive News. "We expect consumer spending to pick up as tax cuts are reflected in pay checks.”
Also on the tax front, while the bill retained the $7,500 federal tax credit for electric vehicles, it was reported last week that Tesla will likely hit the 200,000-vehicle cap on the break this year. This means that some buyers who ordered the new Model 3 might not be eligible for the program by the time their cars are delivered.
Most makes saw their sales decline, though some did not fall as much as they could have because of rising fleet shipments. Both GM and Ford saw identical sales drops of nearly 7 percent, while Fiat Chrysler Automobiles, was down just 1.4 percent. However, GM said its fleet shipments increased by 15 percent and its retail business dropped by 10 percent. GM had been cutting back fleet and concentrating on higher margin retail sales throughout 2017.
Among Asian makes, Hyundai-Kia was down 9.3 percent, Honda dropped 5.0 percent, Nissan declined 4.3 percent and Honda was off by 3.5 percent. The only gainers among the major brands were Volkswagen, BMW and Toyota, with respective increases of 9.3, 7.5 and 4.5 percent for February over year earlier numbers.
Incentives down, prices up
While there are still some pretty hefty rebates on slow moving models (the 2018 Chrysler 300 for instance has a $6,000 spiff on it), average incentives for vehicles is down by $14 over year ago levels to $3,840, according to J.D. Power. Still, they remain at significant levels when looked at in terms of percentage of sticker prices. The research firm reports that these discounts are running at 10.2 percent of MSRP in early February, the 19th time over the past 20 months in which this figure has been over 10 percent.
Average transaction prices (ATP) continue to be higher than year ago levels, but are beginning to taper off when looked at month-over-month. According to Kelley Blue Book data, the ATP for light vehicles in February was $35,444, a 2.1 percent or $722 increase over last year. However, the average was down $96 or 0.3 percent from January.
“It was another month of solid transaction prices in February 2018, with 2 percent growth year-over-year,” said Tim Fleming, analyst for Kelley Blue Book. “Even with new-vehicle demand expected to continue to slow in 2018, average transaction prices have been unaffected, though incentives have risen similarly to offset part of the extra cost. The numbers indicate that new-car buyers are still willing to pay top dollar for the latest models with the most current features and technology. Even the new Honda Accord and Toyota Camry are commanding large premiums over their predecessors, despite competing in a rapidly shrinking segment.”
Toyota Camry transaction prices jumped 9 percent over last year on the strength of the all-new 2018 model, while the Honda Accord grew by 6 percent. Those gains helped to pull up ATP for the midsize car category by 2 percent, a reversal in a market that has seen both sales and pricing erode.
By make, VW Group saw its ATP climb 7 percent in February, much of that attributed to the all-new 2018 Atlas SUV. Nissan saw the smallest increase in average prices, growing only 0.4 percent over February of 2017.
Used truck market to heat up
One of the reasons for higher average transaction prices is that demand for trucks, SUVs and crossovers has been strong, meaning fewer discounts. Those higher prices and lack of incentives have also translated into increased resale values. Still with two out of three new vehicles being sold in America classified as trucks, there are big numbers of them out there that eventually will make their way to the pre-owned market.
Nearly half of the 3-year-old off-lease vehicles returning to the market are trucks and they are expected to exert downward pressure on prices for both used and new units. As a result, analysts are expecting smaller premiums for trucks over cars in the days ahead. “There has been a disconnect between supply and demand in SUVs and crossovers that were underrepresented in used inventory but it’s over,” Jonathan Smoke, chief economist for Cox Automotive (KBB’s parent), told Automotive News. “This is the year we’ll see that.”
Smoke believes that as prices begin to fall for late model crossovers and SUVs, that buyers unable to swing the purchase of new units may opt for Certified Pre-Owned vehicles instead. He cited a 2018 Nissan Rogue selling for $28,000 with a 66-month 5.5-percent loan at $460 per month versus a 2015 model retailing at $20,000 with a 69-month contract at 9.3 percent (used car loan rates are typically higher than new car loans) for $380 per month. “The used one is $80 per month cheaper,” Smoke told the trade paper. “And one is above $400 per month barrier and the other below. The payment on the used side is key and it is amazingly sticky—it refuses to go over $400.” With more crossover, pickup and SUV choices on the used vehicle market, buyers will have more choices on whether to purchase new or used to get what they want.
Dallas dealer’s luxury subscription service
While individual luxury marques like Cadillac and Porsche offer subscription services with the ability to swap out cars within the lineup, Dallas luxury dealer group Park Place is planning to offer its own program that allows customers to choose from a wider range of brands.
In addition to providing unlimited vehicle switches, the three-tier priced program includes valet service where the car is delivered and picked up at a place of the customer’s choosing. The monthly subscriptions start at $895 a month and participants can select lower-priced vehicles from Mercedes-Benz, Lexus, Jaguar, Volvo and Land Rover. The price also includes insurance, and maintenance with no mileage cap.
The middle tier is priced at $1,395 per month and includes higher level models among these brands, plus the Porsche Macan. The Premium $1,795 tier includes the Maserati Ghibli and Levant, Mercedes-AMG models, two more Porsches and the Range Rover Sport and Velar.
Park Place is expected to roll out the subscription service in May limited to about 50 customers. It plans to expand the program significantly by the end of the year.
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