The theme of the season... 💰

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Welcome to the Summer of Incentives

Every year, Memorial Day Weekend kicks off the first major sales bump of the calendar for most dealers and manufacturers. So what was the theme for this year’s MDW? Incentives, incentives, incentives.

What I mean: Average incentive spending per vehicle is expected to come in at $2,640 for the month of May, up a significant 48% from the same time last year, according to J.D. Power and GlobalData.

And if we break down these expected May numbers even further:

• Incentive spending per light truck is slated to come in at $2,710, up $877 from a year ago. And for cars, average incentive spending is on pace to total $2,341 in May, up $767 annually.

• The focus is on moving old models to make room for newer ones—the average discount for a 2023 model year vehicle was $4,147 this month, compared to $1,741 for a 2024, per Edmunds. Dodge had the highest discounts on 2023 models in May at $6,753 on average.

• EV incentive packages are often coming in north of 15% to 20% of average transaction prices these days, according to Kelley Blue Book.

Looking ahead: Monthly incentives are tracking to average roughly $3,200 per vehicle for the rest of the year…up considerably from the average of $1,900 in 2023.

So what’s behind this increase in incentives?

New vehicle inventory is growing…and fast. See, incentives are one of the classic plays called by automakers eager to sell older models or slow sellers. Cash-back offers, special interest rates, discounts, lease bonuses—you name it. Nothing moves inventory like a deal, especially when interest rate and affordability concerns are front of mind for drivers.

And moving inventory is becoming more and more of a challenge for automakers →

• New vehicle inventory came in at 2.84 million at the beginning of May, the highest reading since late 2020, Cox found.

• And: J.D. Power is predicting a large gain in new-vehicle inventory this year, which could mean even higher incentives in the back half of 2024.

But the question tons are asking: Is ratcheting up incentives going to be enough to keep supply and demand in a sustainable balance?

Think about it: Automakers saw firsthand how unbalanced supply and demand can wreak havoc in the post-Covid market. Many OEMs promised to keep days supply lower in an effort to avoid overcorrecting following a period of low supply that drove prices to records—for example, Ford CEO Jim Farley promised in 2021 to keep F-Series supply under 100 days.

…But Ford kicked off May with 99 days supply. Stellantis was at 150 days. MINI and Mitsubishi both came in at 100+ days supply. FYI, about 60 days supply is considered healthy by industry standards.

All those incentives make more and more sense when you realize the direction supply is headed. But back to the big question…are current incentives enough to pull automakers from the brink of oversupply?

It’s hard to know for sure just yet, but: There’s little reason to believe that OEMs are really panicking. After all, even though incentives are higher today than they were during the pandemic, they’re still well below 2018–2019 levels…when we were looking at average incentives hitting 10% of MSRP.

And retail sales are looking healthy to me: New vehicle sales are tracking at a seasonally adjusted annual rate of 15.5 million units, the highest SAAR since before the pandemic.

Oh, and all those incentives on new vehicles could bode well for used prices (an important metric for overall industry health). Incentives hint at rising production levels, which could also mean more pre-owned vehicles hitting the market—OEMs seem to be more open to diverting new vehicles to rental companies and fleet buyers.

The bottom line: It’s a “buyer’s market” for most brands. Automakers are forking over deals we haven’t seen in quite some time. And while that might gnaw into their profit margins in the medium-term (automakers typically spend about 10% to 20% of their revenues on incentives), it’s good news for buyers who want to spend their summers in a new car.

This one sells itself: Here’s the ultimate guide for building a used car dealership empire, straight from Michael Kelley, General Manager of Bourne's Auto Center. Michael told me all about crushing $125 million in sales in one single location, plus his success in turning recon into a profit center. This one is a master class.

The future of EVs in America is here. Plus? The real POV on an auto market recession, why 70% of EV owners will never go back, and how China is tipping the scales in a big way. That’s all courtesy of David Thomas, Director of Content Marketing at CDK Global. You can’t miss David’s insights.

Listen to the episodes here, and subscribe to the CDG Podcast on Apple, Spotify, or wherever else you get your podcasts. And thank you to Uber for Business, Cars Commerce, Auto Hauler Exchange, Private Auto, and CDK Global for making these episodes possible.

Are you still relying on auctions? We want to help you get out of this costly co-dependent relationship and start saving an average of $2,700+ per vehicle acquired with AccuTrade.

How? Tap into the stream of high-quality used cars that come through your service drive every single day. All you need to do is empower your team with a simple appraisal process that gives your customers instant, guaranteed offers.

Watch this demo to see how it works. Then, hear how the team at Germain Toyota has used it to avoid spending fees, shipping costs, and time at auctions for over 2 years. 🤯

We’ve got tons of great jobs hitting the CDG Job Board right now. Here are some standouts for anyone looking for their next move.

• Want to come join the CDG Media rocket ship? We’re looking for a PT/FT graphic designer to join the team.

• This is a great opportunity for someone who wants to flex their sales skills: Tom Whiteside Chrysler Dodge Jeep Ram is hiring a sales rep in Mount Sterling, OH.

• Service is a huge key to dealership success, and Subaru of Fort Myers is looking to level up with a service director.

Looking to hire? Add your roles today—it’s 100% free.

• A group of Tesla shareholders is still pushing other investors to reject CEO Elon Musk’s pay package citing a “material governance failure.”

• Porsche just unveiled the first-ever production hybrid version of its 911 sports car. Starting price? $164,900.

• Looks like Ford will soon allow all dealers to sell EVs.

• Volkwagen is going to develop low-cost EVs to better compete with its Chinese counterparts.

Thanks for reading. See you on the next edition… or in 5 minutes on social media. :)

—Car Dealership Guy

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