If your local auto dealer is starting to look a little worried, there’s a good reason.
New analysis by J.D. Power and LMC Automotive shows it’s taking longer for dealers to sell new vehicles. That’s despite them substantially ramping up incentives meant to sweeten their offer.
“While [the] 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,” Deirdre Borrego, senior vice president of automotive data and analytics at J.D. Power, said.
The latest numbers from showrooms are not pretty. Through April 16, the average incentive for a new vehicle was $3,499 — a record for the month, according to the report. The previous record of $3,393 was set in April 2009.
Nearly four months into the year, the total value of incentives used to sell new vehicles has increased $1.9 billion to $16.4 billion — up 13 percent from the same time a year ago.
Yet despite these rich offers, it’s taking longer to sell a new model. Through April 13, the average new vehicle sat on the dealer lot for 70 days. That’s the highest level for any month since July 2009, according to J.D. Power.
Nearly 30 percent of all new vehicles sold so far this year were on the lot more than 90 days. During the first four months of 2016, that figure was 3 percentage points lower.
J.D. Power’s and LMC’s report comes at a time when many are questioning the health of the auto market. Mike Jackson, CEO of the country’s largest dealership chain, AutoNation, told CNBC on Tuesday that incentives are now 10.5 percent of the manufacturer’s suggested retail price (MSRP).
“To me, the red line on incentives is 10 percent of MSRP, where they begin to lose their effectiveness,” Jackson told CNBC’s “Squawk Box.” “I think they are really at the last level of what’s prudent.”
The average price paid at dealerships for a new vehicle this month is $31,380, also an all-time high for the month of April.
J.D. Power and LMC Automotive expect April’s seasonally adjusted annual rate of sales to be 17.5 million vehicles. U.S. auto sales hit a record 17.55 million last year.
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