This Week in Car Buying: Sales rebound; Top deals of the month; Transaction prices climb; Uptick in loan delinquencies
The Black Friday magic has struck gold as automakers posted a 3.6-percent increase in sales last month, reversing a three-month dip in volume. A record 1.378 million vehicles for the month of November topped the earlier high mark of 1.328 million posted in 2001. It put the industry back on track to either equal or surpass 2015’s record sales of 17.47 million units.
Higher incentives, thanks to the massive blitz of Black Friday and holiday sales events, are responsible for the uptick in sales, which saw increases by General Motors, Ford, Toyota and Honda. Only Fiat Chrysler Automobiles saw sales go down, some 14 percent, a decline attributed to a decrease in fleet shipments.
Other factors contributing to the strong showing include the fact that November had two more selling days than a year ago and continued lower gas prices helped fuel higher truck sales. Consumer confidence also rebounded during November, which has auto execs predicting that 2016 could go down as a record year, dissipating fears that vehicle sales had peaked.
Calling it “a great, great market,” Bob Carter, vice president of automotive operations for Toyota, told Automotive News that: “Any time we're talking mid-17s, [annual sales in millions] that's a wonderful market and a wonderful indication of where the North American economy is.”
Analysts expect the strong incentives to continue through December as makers look to sell down existing inventories of 2016 models and offer higher incentives on new 2017s as they arrive.
Top deals of the month
Auto makers are offering a wide range of incentives that include high cash rebates and low monthly lease rates on vehicles that cut across the entire spectrum of models. No segment, including the SUV market, seems immune from offers that include rebates, low down payment leases and 0-percent financing as the industry looks to close the books on a record 2016.
“This time of year is equally good for car shoppers looking at the latest and greatest 2017 models, and those attracted by big discounts on 2016 models,” said Jack R. Nerad, executive editorial director and executive market analyst for Kelley Blue Book. “This month’s list of standout deals includes both, plus a wide variety of options including SUVs, sedans and a couple of luxury models.”
Jeep will launch a replacement for the Jeep Grand Cherokee next year as a 2018 model and is looking to draw down on its stocks of 2016 versions by offering a $269 per month lease for 3 years with just $269 down. Another traditional SUV, the Ford Expedition, currently carries a $5,000 cash rebate along with 0-percent financing.
At the other end of the spectrum, Hyundai is offering $4,000 cash back on the 2016 Veloster, a subcompact hatchback that features a single door with coupe styling on the driver’s side and a more conventional front and rear door on the passenger side. Currently, KBB.com estimates the Veloster’s Fair Purchase Price at $17,748. Also in the hatchback segment, Volkswagen has a $1,500 rebate and 0-percent financing on its 2016 Golf models. Meanwhile, Toyota has a lease deal going on its 2017 Sienna minivan at $279 per month for 3 years with $1,999 down.
If you’re in the market for a luxury sedan, Acura has a $219 per month deal for 39 months on its 2017 ILX compact 4-door with $2,499 due up front. Infiniti is offering a 3-year, $279-per-month contract on its 2016 Q50 sedan with $2,400 due at signing. Three midsize family sedans are also on Kelley Blue Book’s list of deals with Ford offering $2,000 back on 2017 Fusions with 0-percent financing, while Kia has a $159 per month deal for 39 months on its 2016 Optima sedan with $2,499 down. Chevrolet has a $199 per month lease on the 2016 Malibu. That contract runs 39 months with $2,589 up front.
Transaction prices continue to climb
Even though manufacturers are offering across-the-board incentives, the average price of a new vehicle in the U.S. market continues to go up, suggesting that buyers are using some of these spiffs to get more for their money. According to Kelley Blue Book data, the average transaction price (ATP) for new vehicles in November was $34,948, up $581 or 1.7 percent from a year ago. However, ATP actually dropped month-over-month from $51 from October, reflecting some impact from holiday incentives.
“Climbing transaction prices reflect the shift in consumer preference from cars to more expensive trucks and SUVs,” said Tim Fleming, analyst for Kelley Blue Book. “Manufacturers with strong truck and SUV lineups are currently seeing record pricing, especially in these late fall months when these segments are especially popular. However, the subcompact utility segment, which is the fastest-growing segment in the industry this year, is showing signs of slowing, with prices falling by 1 percent, thanks to higher discounts used to sell down excess inventory.”
The ATP of that subcompact segment dropped to $24,482 from $24,734 a year earlier. However, in the next class up, compact crossover SUVs actually rose from $26,453 to $26,700 over the past year. The biggest increase in ATP by maker was at Fiat Chrysler Automobiles, which saw a 4.7 percent increase in ATP over last year to $36,244. That number is consistent with FCA’s drop in sales that was attributed to its cutting back on lower-margin fleet deliveries.
Uptick in auto loan delinquencies
Perhaps the only dark cloud hovering over the year’s end sales reports is news that delinquencies on subprime auto loans rose in the third quarter. The Federal Reserve Bank of New York released data showing that 2 percent of subprime loans have become 90 days delinquent, up from 1.6 percent two years earlier. The New York Fed said the highest delinquency level recorded was 2.4 percent in 2009 during the recession. Subprime loans are higher-rate loans given to borrowers with a higher credit risk.
“The increased level of distress associated with subprime loan delinquencies is of significant concern,” the Fed noted in its data release. While not on the same scale as the housing bubble, there is about $1.1 trillion in outstanding auto loans. However, the New York Fed also reported that overall delinquencies by prime borrowers remain low.
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