This Week in Car Buying: Luxury incentives brewing; Trucks dominate
Luxury car makers are predicting lower growth rates for 2016 and the slowing sales pace may spark higher incentives as the year wears on. While trucks sales continue to grow, luxury cars actually saw a 3.5-percent decrease in volume during January, according to Automotive News. Most of the downturn in luxury vehicle sales is attributed to traditional sedans and coupes, while luxury crossover and truck sales continue to be strong.
Another factor cited in the possibility of more units being offered with higher incentives is the downturn in the Chinese market, which is causing some foreign makers to redirect higher priced vehicles to the more robust North American market.
“Without a doubt, the marketplace is tightening and what I think that’s going to require is good business discipline,” said Audi of America president Scott Keogh during the Automotive News World Congress in January. “Drive demand for your products; don’t get overstocked and oversupplied; keep your pricing power disciplined,” he counseled. “They’re all the things that everyone has been preaching and let’s see if the preaching can hold true in a market that isn’t growing by double digits.”
Even if the makers are able to keep a tight rein on inventories (currently it is holding an at ideal 60-day supply), the slowdown in demand for sedans could spark higher incentives on these vehicles. Some industry estimates indicate that many of the major luxury brands increased spending on spiffs by as much as double digits during the first month of the year.
Chevrolet sold the most full-size pickups in a decade last year and is poised to further ramp up production of its successful Colorado mid-size pickup. Low oil prices and new product offerings are behind the surge in pickup sales, but with Ford finally reaching full production on its F-150, some are questioning whether or not that sizzling sales pace can be maintained.
According to Automotive News, Chevy was the only brand to gain share last year in the highly competitive segment, accounting for 27.5 percent of the market, up nearly 1 percent over 2014. Ford’s F-Series pickups dropped marginally from 36.5 to 35.7 percent, a drop blamed on the slow ramp up in production of its redesigned F-150. GM’s combined pickup share of Chevy Silverado and GMC Sierra accounted for 37.7 percent of the market. GMC Sierra share was down 0.1 percent.
Meanwhile, the hot start to Chevrolet Colorado and GMC Canyon in the mid-size market has led to a decision by GM to increase production at its Wentzville, Missouri, assembly plant in the hopes of easing tight supply on the trucks, which have been virtual sellouts since their launch 18 months ago. GM is looking to shift some van production from that plant to an AM General facility in Indiana to free up more capacity for the Colorado and Canyon.
Despite the bullish prospects for the truck market, an analyst believes the table is being set for more incentives when the spring selling season gets into full swing citing Fiat Chrysler Automobiles big bet on Ram truck and Jeep vehicle sales to boost revenues. Among the incentives offered by Ram to increase share is a $2,500 rebate with 0-percent interest over 5 years on its pickups. Some specific rebates can go as high as $5,000 by region. And some incentive on older vehicles, like Ford’s soon-to-be replaced heavy duty F-250 and F-350 have $2,500 cash back offers on them.
Loan balances rise
Reflecting the increases in average transaction prices, loan balances are continuing to rise according to a new study by Experian Automotive. The outstanding amount owed by consumers on new cars rose 11.5 percent to reach $987 billion during the fourth quarter of 2015. According to Experian, it is the highest balance recorded since it began tracking the data in 2006.
“The boost in automotive sales has contributed to a strong quarter for all lender types across the industry,” said Melinda Zabritski, Experian’s senior director of automotive finance said. “While loan balances continue to rise and lending may be more easily attainable, it is critically important for consumers to stay on top of their monthly payments to keep the automotive market running on all cylinders.”
The report noted that 30-day delinquencies are down, just 2.57 percent from 2.62 percent a year earlier, although 60-day delinquencies actually increased marginally from 0.72 to 0.77 percent. “While rates in the more severe delinquency category are up, it’s important to note that the increases are modest and relatively low from a historical perspective,” Zabritski said, but she noted, “Also, given that we’ve seen an increase in loans to subprime and deep-subprime consumers, it’s natural to see a slight uptick. Although not yet a cause for concern, the industry should keep an on eye on this metric to see how it trends in the quarters to come.”
Tesla drops 85-kWh model
As part of a streamlining of its lineup, Tesla has dropped its 85-kWh models as it discontinues the battery pack in favor of its base 70-kWh and flagship 90-kWh batteries. As a result, the least expensive model remains a rear drive Tesla Model S 70 at $70,000 plus $1,200 delivery. The 90D all-wheel drive version is $88,000. The other models in the lineup include the AWD 70D and the range topping P90D.
No Macan diesel in sight
Porsche said that while it hopes to return the Macan diesel to the lineup, it has no immediate plans to do so, at least until its parent, VW Group, settles the matters surround its use of software that cheated emission testing. Originally slated to go on sale late last year as a 2016 model, the 245-horsepower V6 Macan diesel was expected to be priced below $60,000 and slotted between the base Macan S and the Turbo model. In addition to putting the Macan diesel on hold, Porsche has also pulled diesel-powered Cayenne SUVs from the North American market.
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