How Sustainable is the Boom in Auto Sales?

Michael Teague  |

Much has been made recently of the somewhat unexpected increase in auto sales in the U.S. as of late. Nissan for example reported a 25 percent increase in sales for the month of May, which bested the 22 percent increase forecasted by analysts surveyed by Bloomberg.

Subaru for its part topped Asian auto sales with a 34 percent increase during the same period.

But the narrative of the auto industry’s comeback after the economic collapse of 2008 is potentially belied by some misleading optical contrivances. According to data released by Edmunds.com on Tuesday, the incentives that auto makers are giving to their customers in order to get them to spend money have reached an astounding average of $2,500 per vehicle, some 8 percent of the market.

Just recently, Nissan has cut sticker prices, and Volkswagen (VOW) has introduced a new lease plan that allows customers to roll off the lot in a new car without putting down any cash. The big three auto makers are in on the game as well, with both Chrysler and General Motors (GM) giving incentives of over 10 percent in some instances. For its part, Ford (F) is not far behind with 9 percent incentives.

The favoring of volume over margin is an age-old trick of the auto-sales trade, particularly with the kind of tough times that have been experienced by most Americans over the past few years, and it is not even necessarily a hit to the bottom line to use such ploys. The problem, however, is that there is evidence that the ploy is quickly losing its effectiveness.

As auto makers have increased incentives over the past few months, sales have slowly edged downwards, dropping from a 15.46 million to a 15.24 million annual rate since November of 2012. All the same, the deals are expected to get better, as auto-makers and dealers will soon have to make room for a new fleet of 2014 models.

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