Auto Incentives Take A Dive, With The Shortage Of New Cars And Trucks - Forbes

The average manufacturer-sponsored incentive is less than half what it was a year ago, and the lowest on record for the month of July, according to J.D. Power and LMC Automotive.

That makes the average incentive a predicted $2,065 for the month, based on data from the first part of July, down from $4,235 a year ago, the research and consulting firms said.

As a percent of suggested retail price, July incentives were on a 4.8% pace for the month, also a first, if incentives for the entire month fall below 5% of suggested retail.

High customer demand, coupled with the well-documented new-vehicle shortage are responsible for the low level of discounts, analysts said.

In turn, a computer chip shortage is responsible for continuing the shortage, which began last year, because car dealerships and auto factories shut down due to the coronavirus pandemic.

When most business shutdowns ended last year, consumer demand recovered faster than the auto factories could get back to speed. Inventories fell, as customers bought new vehicles faster than the factories could make them. Then the computer chip shortage hit, beginning late last year.

Analysts and auto executives expect the shortage — and high prices, and low discounts — to continue through the rest of 2021, and into 2022.

“Well, I think basic economics says low inventory obviously grows the demand, and we get strong gross profits, which I think will continue,” said Roger Penske, chairman and CEO of the Penske Automotive Group dealership chain, based in Bloomfield Hills, Mich., in a July 28 conference call.

For the second quarter, Penske Automotive Group’s average gross profit per new vehicle retailed was $4,770, up 36.3% vs. a year ago. The average used-vehicle gross profit per vehicle retailed was $2,618, roughly double what it was a year ago.

Roger Penske pointed out that gross profits are also up because the group reduced its headcount and became more efficient; it wasn’t simply a matter of raising prices.

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