LAS VEGAS, March 31, 2016 /PRNewswire/ -- Following an exceptional performance in 2015 with strong sales and record average price per vehicle sold, the U.S. automobile market must adopt a more disciplined approach to maintain long term health for the industry, according to a briefing given by J.D. Power here today at the 2016 J.D. Power Automotive Summit.
J.D. Power warns that incentive spending on new vehicles has risen rapidly in the past year and is trending toward recession-era levels for the industry as a whole and has already exceeded recession-era levels on cars.
The analysis, presented as part of the J.D. Power Automotive Summit, which kicks off the National Automobile Dealers Association Convention & Expo, finds that while overall industry retail sales are expected to grow by 300,000 to 14.5 million units in 2016, the growth is being delivered through actions that pose meaningful risks to the long-term health of the industry. Those actions include elevated incentive spending, increased use of extended loan terms, rising loan-to-value ratios and record levels of leasing.
"Overall, auto sales figures continue to post strong results, but when you peel back just one layer beneath the surface, some worrisome trends are taking hold," said Thomas King, vice president of Power Information Network at J.D. Power. "Chief among the trends is the fact that first quarter sales incentives averaged 9.6% of MSRP, a 70 basis-point increase from last year and are trending toward levels observed at the height of the recession.
"The increased spending, which is due primarily to manufacturers trying to offset a shift in demand from cars to trucks and SUVs, has the potential to reduce future resale value. Significant declines in the value of used cars would disrupt consumers' ability to buy new vehicles (due to lower trade-in values), while vehicle manufacturers and lenders would have to deal with exposure on their lease portfolios (if off-lease vehicles fail to achieve their expected resale value)."
King noted that an immediate and significant reduction of incentives on new cars is required, but that means manufacturers will have to reduce car production levels. While many manufacturers have already made significant adjustments to their production schedules, the scale of the shift away from cars toward trucks and SUVs is such that further, more significant changes are required.
Following are the key findings in the J.D. Power briefing (data is for the first quarter of 2016 compared with the first quarter of 2015, unless otherwise noted):
- Overall Sales Growth Projected Through 2017: In 2015, 14.2 million retail sales were achieved. That figure is projected to grow to 14.5 million in 2016 and 14.7 million in 2017.
- Rising Incentives Are Major Concern: Industry-wide, incentives are averaging 9.6% of MSRP and are just 150 basis points shy of the peak level reached at the height of the recession.
- However, industry average incentives mask a significant deviation between spending on cars vs. trucks: Spending on cars has reached 12.3% of MSRP, well above peak recession levels, while spending on trucks has remained stable at 8.2%.
- Long-Term Loans and Leases on the Rise: The percentage of loans in the 84 months and longer range is now 5.4% of total sales, up 140 basis points from 2015. Likewise, the percentage of vehicles that are leased is now 31.4%, up 360 basis points from 2015.
- Buyer Credit Scores Declining: The proportion of new-vehicle buyers with FICO scores below 650 has increased 40 basis points from 2015, with a total of 17.6% of all buyers now falling into that category.
Find more detailed information about the J.D. Power Automotive Summit at the NADA 2016 Convention & Expo, visit http://www.jdpower.com/resource/2016-automotive-summit-home.
Media Relations Contacts
J.D. Power—John Tews, (248) 680-6218; firstname.lastname@example.org
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SOURCE J.D. Power