For much of the past four years, automakers and their dealers have had so few cars to sell — and demand so strong — that they were able to command high prices. These days are over and the deep discounts are celebrating their comeback.
During the coronavirus pandemic, auto production was slowed first by factory closures and then by a years-long global shortage of computer chips and other parts.
With few vehicles in showrooms, automakers and dealers were able to remove most sales incentives, forcing consumers to pay full price. Some dealers increased the manufacturer’s suggested retail price by thousands of dollars, and people began buying and trading in-demand cars for a profit.
But as chip supplies have returned to healthy levels, auto production has recovered and dealer inventories are growing. At the same time, higher interest rates have dampened demand for vehicles. As a result, many automakers are scrambling to keep sales going.
Wes Lutz, owner of Extreme Dodge in Jackson, Michigan, said he has several Dodge Challengers and Chargers that are eligible for an $11,000 rebate from Stellantis, the maker of Dodge, Chrysler, Jeep and Ram models . The automaker is also offering discounts of up to $3,600 on certain versions of the Dodge Durango sport utility vehicle.
“It seems like we’re headed toward stimulus and overproduction again,” Lutz said. “It’s not there yet, but it’s getting closer.”
Shrugging, he added: “It may not be good for me or the manufacturer, but it’s certainly good for the consumer.”
Cashback offers, subsidized loans and other incentives are important tools when selling a car. They allow automakers and dealers to offer monthly payments that are more affordable for consumers and mitigate the impact of high interest rates.
According to Edmunds, a market researcher, shortages and consumers’ preference for large vehicles have pushed the average purchase price for new vehicles to just under $47,000 and the average monthly payment to $735 in recent years. According to Edmunds, the average interest rate on used car loans was 11.6 percent in April.
At this level, many consumers can no longer afford a car without significant incentives.
But when taken to extremes, incentives can erode automakers’ profits and cause a surge in sales that inevitably leads to a painful decline. Repeated price discounts also force consumers to only buy cars when they are offered a bargain.
Two decades ago, the industry experienced an incentive frenzy. For a time, General Motors sold cars at the deeply discounted prices it had previously offered only to its employees. Extreme discounting helped weaken GM and Chrysler before they filed for bankruptcy in 2009 during the financial crisis.
The industry has avoided this trap for now. According to market researcher Cox Automotive, automakers had nearly 2.9 million cars and light commercial vehicles in stock at the end of May, about a million more than at the same time last year. Nearly 7 percent of those vehicles were 2023 models. In comparison, there were 4.1 million vehicles in stock in 2019, according to Automotive News.
Toyota, Honda, Subaru and GM’s Chevrolet and Cadillac brands have kept their inventories tightly under control and generally have not yet significantly increased incentives.
But Ford, Lincoln, Dodge, Chrysler, Nissan, Volvo and several other brands have higher inventory levels – enough to last more than 100 days at current sales rates. They offer some great incentives, but they are mostly targeted at specific models and sometimes specific versions of specific models.
Ford, for example, is offering $5,500 off its Escape SUV, but only on the 2023 models still in dealer inventory. Stellantis offers $4,000 cash back on the Ram pickup, but it’s limited to the 1500 Classic version. Volkswagen offers interest-free financing for the 2024 Taos small SUV, but not for its other models.
“So far we’re not seeing the kind of general stimulus that we’ve had in the past,” said Charles Chesbrough, a senior economist at Cox Automotive.
The growing number of incentives for new vehicles has helped drive down prices for used cars and trucks. According to the Bureau of Labor Statistics, used car prices fell nearly 7 percent in April.
Among the currently most heavily discounted models are electric vehicles, whose sales have declined in recent months. Consumer enthusiasm for these models has waned, largely because of concerns about the higher prices of electric vehicles and the challenges of keeping them charged, especially on road trips.
Now automakers are offering generous incentives to lure consumers. Volkswagen is offering discounts of up to $18,750 when leasing the 2023 ID.4, which is still readily available in some locations. This includes the $7,500 federal tax credit that can be built into leases under the Inflation Reduction Act.
There are other attractive offers for the Chevrolet Blazer electric vehicle, the Cadillac Lyriq, the Kia EV6, the Volvo XC40 Recharge Hybrid and the Ford F-150 Lightning electric pickup. Tesla, which regularly raised prices during the pandemic, has spent the last year and a half cutting them. The company recently began offering 0.99 percent loans for its Model Y SUV
The incentives come on top of other trends helping drive down the price of electric vehicles, including falling manufacturing costs and increasing competition.
Increased discounts help attract so-called “dream buyers” – consumers who don’t need a new car but are attracted to new technology, designs or features.
“You have your ‘need buyer’ whose car is broken or needs a lot of expensive repairs, and he needs to get a new vehicle,” said Adam Silverleib, owner of a Honda and a Volkswagen dealership outside Boston. “But many of these ‘dream buyers’ disappeared when interest rates rose, and now incentives are bringing some of them back.”
Among them is Brian Pawlowski, a digital marketing manager in Chelsea, Michigan. He had been driving a 2017 Chevrolet Volt plug-in hybrid that only had 55,000 miles on the odometer. But he really wanted to get a fully electric model.
“I am a person who likes the environment,” he said. “I could have kept the Volt, but I wanted to upgrade to newer technology.”
He looked for electric car deals and found a two-year lease on a Hyundai Ioniq 5 SUV. The deal included a $13,000 rebate and other terms that gave him a monthly payment of $369 for a vehicle with a sticker price of $52,000.
“When the seller laid it all out,” Mr. Pawlowski said, “it was pretty hard to pass up.”
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2024-06-03 18:07:46
www.nytimes.com
