Vehicle sales on track with '16; incentives surge

DETROIT — New vehicle sales for 2017 are expected to remain on pace with last year, even as incentive spending hits record levels through April, according to a forecast developed by J.D. Power and LMC Automotive.

LMC predicts total light vehicle sales in 2017 will slip by 40,000 units to 17.5 million, a decline of 0.1 percent from 2016.

"While industry retail sales pace remains high, it is being powered by elevated levels of incentive spending, which pose a serious threat to the long-term health of the industry," said Deirdre Borrego, senior vice president of automotive data and analytics at J.D. Power, who noted that the value of incentives used to sell new vehicles had increased by $1.9 billion through the first four months of 2017.

Total incentive spending in the marketplace stands at $16.4 billion through April, up 13 percent from last year, the market analysts said.

On a per-unit basis, average incentive spending for a new vehicle through April was $3,814, up $460 from a year ago. For light trucks and SUVs, spending rose $578 to $3,740, while on cars, spending was up $308 to $3,938

Despite record incentive levels, average days to turn — the number of days a new vehicle sits on a dealer lot before being sold to a retail customer — continues to rise. Nearly 30 percent of vehicles sold in 2017 sat on dealer lots for more than 90 days, up from 27 percent last year, according to the report.

"With flat retail demand and inventory at record levels, manufacturers will continue to face a difficult choice between maintaining elevated incentives or making production cuts," Ms. Borrego said.

Retail sales in April are anticipated to reach 1.17 million units, a 1.3-percent increase over the year-ago period, on a selling-day-adjusted basis. Year-to-date, retail sales in 2017 have edged up 0.3 percent over the comparable 2016 period.

The average new-vehicle retail transaction price to date in April is $31,380, a record for the month, surpassing the previous high for the month of $31,228 set in April 2016, according to the report.

Average incentive spending per unit through April 16 is $3,499, a record for the month, and surpassing the previous high for the month of $3,393 set in April 2009.

Light trucks account for 61.8 percent of new-vehicle retail sales so far in April — the highest level ever for the month of April — making it the 10th consecutive month above 60 percent, according to the researchers.

However, days-to-turn reached 70 in the first 13 days of April, the highest level for any month since July 2009, according to the report.

"Retail auto sales are performing as expected but non-retail sales have been slightly lower, which is the primary reason for total sales being down 1.4 percent year-to-date. But this is no time to hit the panic button," said Jeff Schuster, senior vice president of forecasting at LMC Automotive.

"There's a lot of runway left in the year and many variables. Economic and policy factors remain important in setting direction for the auto sector in the near-term, however, given the year-to-date performance, risk assessment is looking at internal factors like used car pricing, lease penetration and the interplay between vehicle inventory and incentives."