Offering their customers significant discounts is one way for carmakers to deal with the devastating effects that the ongoing coronavirus pandemic has had on the automotive sector in terms of retail sales.
While analysts are expecting June sales to drop 25% year-to-year, they will still show improvements compared to the declines from April and May, which points to somewhat of a recovery for the market, or at least the beginning of one.
Discounts are crucial when it comes to luring customers into dealerships, whether in person or online. Take for example Belal Bilto, a Manhattan resident who bought a Jeep Gladiator this month for just over $48,000 – a discount of roughly $5,000, plus a seven-year, no-interest loan.
“We went specifically for the Gladiator because the model was (being offered at) employee pricing and we also got free service after 1,000 miles and a free repair offer for a serious accident,” Bilto told Reuters.
Now, even though some of these deals have been very attractive, some analysts believe that sales could eventually drop again because of tight inventory.
“The speed at which the (automakers) stepped in to support the franchised dealer network as well as the retail consumer is historically significant,” said retailer Lithia Motors’ CEO, Bryan DeBoer.
Meanwhile, J.D. Power claims that spending on discounts hit record levels this month at about $4,441 per unit – a 12% increase from $3,966 per unit in June 2019. Back in April, per vehicle spending peaked at roughly $5,000 for the year, a 40% spike compared to the same period last year.
“The top three automakers have packed in aggressive incentives with extended financing at 0% rate for 84 months in addition to payment deferrals for up to six months,” said J.D. Power VP of data and analytics, Tyson Jominy. “Before COVID, only 7% of all sales represented loan terms for 84 months. That metric shot up to 21% during the peak. That’s unprecedented.”
Total incentives offered by carmakers between March and June are estimated to be down about 12% to $18.6 billion, though, compared to 2019, due to a 28% drop in overall volume.