DETROIT -- Incentives not only will climb along with transaction prices in 2017, they’ll be more strategically placed than in the past, too, experts at the North American International Auto Show said last week.
Prices have increased as consumers buy more crossovers, trucks and SUVs and as in-vehicle features have advanced, said Jessica Caldwell, senior analyst and director of pricing and industry analysis at Edmunds.
“As long as interest rates stay relatively low, people should be able to finance these more expensive vehicles,” Caldwell said. “So I think on that side of the equation, we’ll see prices go up. And when they do, you could also see incentives go up.”
When interest rates are low, automakers aren’t paying as much to subvent financing as they would if interest rates were higher, she added.
As the market gets more competitive and sales flatten or decline, automakers may experiment with various incentives at different times to boost market share. They may be targeted by region or by dealership, but blanket cash-on-the-hood incentives are “archaic” now, Caldwell said.
“That blanket $500 cash back, that’s not something that is done or really moves the needle now,” she said. “I think if you’re going to spend that $500, rather than offer a blanket incentive to everyone, be a bit more strategic. You may need $500 in some markets, where you may need $800 in others.”
Incentives can change every month or even more often, said Craig Monaghan, CEO of Asbury Automotive Group Inc., but if they “just become a way to discount the price of the car, and they’re not intelligently designed, they create some very difficult disruption in retail.”
In a market driven by light-truck demand, incentives will also be targeted on cars, said AutoNation Inc. CEO Mike Jackson.
Light trucks accounted for a record 61 percent of all light-vehicle sales in 2016. Car demand fell 8.9 percent, while light-truck sales rose 7.4 percent, according to the Automotive News Data Center.
The industry is determined to sell 17 million vehicles this year; “the variable is incentives,” Jackson said.
“Because the mix continues to stampede toward trucks, you have to overincentivize cars,” he said. “But trucks provide the profitability. [Automakers] could afford to do what they need to sell 17 million vehicles.”