Reuters
- The pandemic changed car-buying and cut a lot of the incentives shoppers were used to.
- Things are normalizing, and incentives for some types of cars and brands are creeping back.
- Car-buyers could find some good deals — but markups also have to stop first.
Weary car-buyers may be in luck as some automakers bring back incentives to boost vehicle demand amid skyrocketing interest rates.
Overall, incentives — like rebates and loyalty cash — remain substantially lower than they were before the pandemic upended the car-buying business. Car buyers didn't see the end-of-year blowout sales in November and December that they had been used to in holiday seasons' past.
Instead, shoppers had to settle for new and used vehicles with markups above sticker price and no wiggle room.
Meanwhile, the average interest rate for new vehicle loans was around 5.16% in the third quarter of 2022, (up from 4.09% the year before), and 9.34% for used (up from 8.12% in 2021), according to Experian.
But in January, incentives rose slightly to 2.8% of a vehicle's average transaction price (down from a whopping 8.6% on average just two years before and as much as 12% pre-COVID), according to Kelley Blue Book, but up from 2.7% in December.
That puts discounts now at around $1,297, about 1% higher than the same time in 2022, Deutsche Bank analysts estimated this week. It's the "first time since July 2020 that incentives have come in higher from the prior year," they said.
"Going forward, we expect to see incentives continue increasing as vehicle inventories rise, dependent on the production environment and ongoing supply chain challenges," Deutsche Bank said.
Where buyers might find the best incentives
Luxury vehicles saw the highest incentives at 6.2% in January, KBB said. The most affordable vehicles, like compact cars and compact SUVs, had incentives between 3% to 4%. Vans and minivans had the lowest, at less than 1%.
"We're starting to see manufacturers come back with some incentivized interest rates to try to drive traffic," Scott Kunes, COO of Kunes Auto and RV Group, which owns more than 40 dealerships in the Midwest, told Insider. "There's also some loyalty cash, and there's a pretty decent amount of rebates on some of the higher end vehicles. That's a very small market, but it's a high profit area for the manufacturers."
Most non-luxury brands also saw declines in average transaction prices between 0.3% to 4.9% month-over-month in January, KBB said, indicating higher incentives could be pushing those vehicle prices down. That includes Chevrolet, Chrysler, Dodge, Ford, Honda, and more.
"Right now, for GMC Sierras, there's a 2.9% rate. Buicks, there's a 3.9% rate that you can get, plus there's rebates and incentives, like up to $6,000 off of MSRP on GMCs, up to $4,000 off on Buick Encores," Whitney Yates-Woods, dealer principal of Yates Buick GMC in Goodyear, Arizona, said. "We didn't see that during the pandemic at all.
"The subvented financing — so many of our buyers are using it," Yates-Woods added. "Financing through GM Financial, getting a really good rate, and then they're not feeling that payment being so high."
Yates-Woods' advice to buyers? "Try to take advantage of the incentivized rates that the manufacturers are offering," she said. "Make sure that you ask to see if you can qualify for it, because pretty much everyone's offering something and also, you can negotiate a good deal."
Thomson Reuters
Other shoes still have to drop
Tyson Jominy, a vice president analyzing automotive at J.D. Power, said he expects the industry to have a much higher incentive environment in the coming years.
"Over time, we'll ultimately have a lot more price pressure creep into the industry quickly," Jominy said. "It may become, we have way too much capacity and now all of a sudden we have to put incentives back on."
First steps first, though. About 50% of vehicles were sold over MSRP last summer, but that's down to around 30% now. That has to continue in order for incentives to increase.
"That's what we're seeing first — the first shoe to drop is pricing and dealers starting to not charge over MSRP anymore," Jominy said. "If dealers are still charging over MSRP, it doesn't make sense for automakers to incentivize. Automakers are waiting for at least MSRP, and then we can start talking about variable incentives."