#used car deals
Will Black Friday Deals Give a Boost to Car Sales?
By John D. Stoll
The U.S. auto industry likely shrugged off calendar curveballs in November to post its third-consecutive annual sales rate above 18 million units, suggesting the car business is at the strongest level since at least 2001.
Low gasoline prices, attractive offers and a healthy economic backdrop continue to spark interest in new cars and trucks.
Auto makers in recent years began offering Black Friday deals, revving up demand in a month that traditionally had been a dud for car dealers. The avalanche of offers likely offset the fact November had only four selling weekends for the first time since 2012 and the fewest selling days of any month since 2013, at 23, according to J.D. Power.
The California research firm estimates sales increased 7% to 1.3 million light vehicles, with growth driven by attractive lending terms and incentives, which are keeping monthly transportation costs nearly in line with rates paid a decade ago even as sticker prices skyrocket.
The average monthly car payment is $490, up only $34 since 2005, according to Edmunds.com. Interest rates are down about two percentage points since then, and loans now average a term of 68 months; customers relying on dealer financing leasing has soared while cash buyers have fallen by about 50%.
Every auto maker except Mazda Motor Corp. and BMW AG lifted incentives in October versus the same period a year ago. Analysts say that trend likely stuck in November.
While analysts are beginning to wonder if the deals have become too sweet, auto makers can offset concerns by reporting another month of robust transaction prices (which are nearing a record $31,500 per vehicle minus the cost of incentives). The most important factor for pricing is the mix of pricier trucks vs. bread-and-butter passenger cars; in October 57% of vehicles sold were considered light trucks, the highest level since December 2005.
That trend led Ford Motor Co. and General Motors Co. to record operating profits in North America during the third quarter.
AutoData Corp. estimates incentives in October crept above $3,000 to the highest level in more than four years. Fitch Ratings earlier this month warned that if rebates and discounts climb further, used-car prices–a significant factor in the strength of new-car sales and the risk profile of auto loan and lease asset-backed securities–will sag.
Fitch’s theory, however, should be tempered by the fact inventories remain tight even as output soars.
Dealer stocks narrowed significantly in November, according to WardsAuto.com, and buyers are struggling to find ample supply of the profitable light-trucks in hot demand amid low gasoline prices. The industry’s boom a decade ago was fueled by costly sales incentives from Detroit auto makers saddled with too much production capacity and trying to push unwanted cars and trucks.
North American auto production is now running at historic highs and capacity utilization is healthier than ever, Wards reports. That means the deals that buyers are seeing in the market are more about greasing momentum that is built on strong underlying fundamentals than propping up false demand. Still, it is a good time to buy a car.
GM staged monthlong Black Friday sales, offering as much as 20% off on some vehicles, including $7,000 off the popular Chevy Tahoe SUV. Across town, Ford attracted attention with its “Friends Neighbors” no-haggle price deal in early November, but it will move to a more-conventional bonus cash offer for December. Both companies aimed to present a set-pricing strategy that cut down on haggling at the dealership and gave customers more confidence.
Chrysler Automobiles, Nissan Motor Co. and Hyundai Motor Co. all offered incentives above $3,000 per vehicle sold, on average. GM, however, was stingier when it came to incentives as a percentage of selling prices, joining only Toyota Motor Co. and Honda Motor Co. in keeping discounts below 10% of actual transaction values.
Jeff Bennett contributed to this article.
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