When car sales are high, everyone wins – MarketWatch

Posted: Friday, November 13, 2015

The stars have aligned for car shoppers in search of a bargain.

In an effort to maintain the strong momentum car sales have been experiencing this year, auto makers have been offering more deals and promotions on their vehicles. In addition, end-of-year clearances, Volkswagen’s

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emissions troubles, and auto maker fights for market share are creating a consumer-friendly environment for car shopping.

“2015 is shaping up to be the best new car sales year in history,” says Jessica Caldwell, director of industry analysis at automotive research site Edmunds.com. As the end of the year approaches, auto makers scramble to fulfill high sales objectives and continue to offer incentives to keep dealership foot traffic up. In 2008, in the midst of the recession, sales were just topped 13 million, according to data from Edmunds.com, however, this year, sales are expected to close at 17.3 million, according to IHS Automotive.

If sales do eventually slow down, the discounts could be even greater, says Akshay Anand, a senior analyst at Kelley Blue Book. When sales dip below the seasonally adjusted annual rate of 18 million cars, Anand says, “that’s when you’ll see the blowout sales.” Annual auto sales are projected to reach 18.2 million cars by the end of 2017, according to IHS Automotive.

Caldwell says that this is also an important time for auto makers to attract new and younger customers who will return a few years down the line when leases expire. Thus, companies are more willing to take the hit in profit now to enlarge their customer base in the long run. “When the sales rate is high, there aren’t really any losers,” Caldwell says.

Customers are becoming more loyal to auto brands than in past years, according to a 2014 study by IHS Automotive, and are more likely to stick to names they know and trust. As sales remain high and millennial buyers enter the market, it creates an opportunity for companies to establish new customer relationships.

Some vehicles will have bigger discounts than others. Pickup trucks and SUVs will see the biggest incentives, he adds, since their profit margins are typically higher so manufacturers have more room to cut prices. And low gas prices also help. While the holiday season is usually prime time for car sales, luxury brands such as Toyota’s

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  Lexus and Mercedes-Benz do especially well, Caldwell says, due to their popularly recognized holiday sales events. In recent years, companies have begun special holiday offers in November to take advantage of Black Friday consumer enthusiasm.

Aside from the usual lot-clearing holiday sales, companies are touting additional discounts to keep pace with industry salesand meet year-end sales targets.

After Volkswagen admitted that they cheated with diesel vehicles on Environmental Protection Agency emissions tests in September, sales volume in the U.S. increased slightly, but transaction values decreased. The company ramped up incentives by 56% compared with October 2014. These offers include “loyalty bonuses” of $1,000 to $1,500 on many of its new models and a $1,000 bonus for switching to Volkswagen from another brand, among other promotions. When prices are low, “consumers are willing to listen,” Anand says.

While Volkswagen’s discounts are an attempt at recovery, other auto makers are promoting major deals to increase market share. Ford’s

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“Friends & Neighbors Pricing Event” offers discounts typically available to friends and neighbors of Ford employees, cutting prices as much as 10% on top of existing incentives. Though the company’s sales have been strong in recent months, the discount is the biggest sales event for the auto maker since the 2008 to 2009 recession, according to Automotive News, suggesting Ford is after a bigger piece of the market. Ford’s market share has dropped to 15% from 15.1% in 2014 year-to-date, and trails General Motors

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by 2.7%, according to data published by The Wall Street Journal. Ford wants to make people aware that they’re still here, Anand says.


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