Big deals are coming on new vehicles in spring and summer as automakers try to shave bloated inventories.
Dealers will be offering rich incentives such as low monthly leases, cash back and generous financing -- especially on traditional cars, which continue to plummet in popularity.
That was the consensus at WardAuto’s Outlook Conference held near Detroit this week.
“There’s too much stock, especially for cars,” which “are tanking even more than we thought they would,” said Haig Stoddard, senior analyst at WardsAuto.
Consumers continue to shift away from cars and toward crossover utility vehicles that hold more cargo but don’t drive like trucks.
Car sales have sunk from half of U.S. vehicle sales 10 years ago to about 40% of sales today, according to the Auto Alliance. Years of low gas prices have hit compact cars and hybrids especially hard. In 2016, truck sales were up 7.21% while car sales were down 8.56%, the Auto Alliance said.
The inventory overhang is especially high at General Motors. Several redesigned GM vehicles are due in showrooms this fall, so dealers will be especially motivated to move the older models.
Meanwhile, GM is likely to reduce its output, Stoddard said, after having built too many cars: “We think there are going to be lots of production cuts at GM on the car side.”
Overall, vehicle sales remain strong but are flattening after six years of torrid growth. Last year, 17.55 million cars and light trucks were sold in the U.S., barely up from 17.5 million the year before. Stoddard, and many other industry watchers, believe a cyclical downturn likely is near.
Even small crossover vehicles, “the hottest segment over the last two years, has flattened out,” Stoddard said, with inventories rising and sales agents more likely to cut deals than in years past.
Part of that is because of the natural business cycle in the industry: At some point, enough people have bought new cars that the customer base begins to shrink. As vehicles age (and the economy is good) sales go back up. The cycle was stronger than usual this time around because people held onto used cars during the recession, so there was pent-up demand as the economy improved. Low financing and gas prices also helped.
Toyota and Nissan, both late to the segment, will add two small crossover vehicles into the mix this year.
Even trucks are under pressure. Although truck sales are still in the healthy range, the segment is “bordering on the point where we might say we have too much truck inventory.”
A rise in interest rates might also prompt dealers to shrink inventory: They’re on the hook for interest payments as vehicles sit on lots unsold.
But dealers may be reluctant to lower inventory in their best-selling segments, said WardsAuto senior editor Tom Murphy. So many different vehicle options are now available that higher-than-historic inventory levels may be needed so dealers have enough vehicles, in the right configurations, ready for buyers to drive off the lot.