Reduced incentives could shrink June growth

Major OEMs scaled back incentive programs on new trucks, SUVs and crossovers in June, which will likely lead to fewer vehicle purchases in those segments and spur consumer migration to the used-vehicle market, according to J.D. Power. 
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With potential constraints on vehicle inventories and lower incentive programs, the industry may see a slower recovery in June following late-May growth, said Tyson Jominy, vice president of data and analytics at J.D. Power. 

RAM, a division of Fiat Chrysler, pulled back its incentive programs more than other manufacturers, increasing the annual percentage rate on the new 2020 model to 3.9% and 5.9% on contracts for 60 and 72 months, respectively. By comparison, APR financing was 0% for 72-month loans, and 0.9% on 84-month contracts last month. RAM also reduced its payment-deferral options to 90 days, from 120 in May.
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Ford Motor Co., too, scaled back its payment deferrals in June to 90 days, but still offers 0% financing for 72 months.

Going into June, Chevrolet and GMC are offering 0% APR on 72-month loans, whereas they were offering 0% APR on 84-month loans in May.

Manufacturers likely reduced incentives in June as automotive production restarted following the coronavirus pandemic, according to J.D. Power. As a result, the rate of growth is expected to slow down and prices may modestly decrease, said Larry Dixon, senior director of valuation services at J.D. Power. 

At the news of reduced incentive programs in June, franchise dealerships rushed to finalize deals in May, Jominy said, noting that sales could decline in those segments. Compact SUVs, which have historically been the most popular segment with consumers, reported record sales numbers in May likely due to OEMs’ incentive programs.

Incentive programs that pumped up May sales have effectively put a squeeze on inventory, said Thomas King, president of data analytics at J.D. Power, noting that inventory struggles could worsen in June before showing signs of recovery in July. 

“Depending on the strength of the sales recovery, we will certainly see a challenging inventory environment in the month of June, likely in the range of 2.5 to 2.7 million new units,” King said. He expects that July will see a recovery of around 3 million units.​
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Originally published on Auto Finance News