Why more dealer incentives could be coming to new vehicles
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As new vehicle inventory continues to grow and sales slow, manufacturers and dealers are expected to offer higher incentives to keep cars and trucks moving off lots in 2025.
These findings are part of Cloud Theory’s report On the Horizon: 2024 Review and 2025 Outlook that was released recently.
New vehicle inventory reached 3.23 million units in November 2024, up from 2.49 million in November 2023. At the same time, the average days to move a vehicle jumped from 51 days to 71 days, the group reported.
Despite this shift in supply and demand dynamics, average marketed vehicle prices generally remained above USD$50,000 throughout the year, after surging from USD$38,276 in 2019. With expensive vehicles sitting on lots longer, manufacturers and dealers are likely to turn to incentives to remain competitive.
High vehicle prices have resulted from manufacturers’ strategic decisions to move away from lower-priced models. In 2019, there were 72 models priced under $30,000. By 2024, that number had fallen to 22. Additionally, general inflationary pressure and a shift to higher-priced and higher-contented trim mixes have also kept prices elevated.
“With inventories already surging and vehicle sales growth and turn rates lagging behind, higher costs will put further pressure on manufacturers at a time when they are starting to become more reliant on discounts and incentives to move metal,” said Rick Wainschel, vice president of data and analytics for Cloud Theory. “At some point, OEMs will have to balance those competitive pressures with profitability, and it may be inevitable that they will have to cut into their bottom lines to stay competitive.”
And incentives are well up compared to last year, though less so recently, according to Kelly Blue Book. In its analysis for February 2025, Kelley Blue Book reported that sales incentive levels were mostly flat month over month but up 18.6 percent compared to February 2024. The group reported that the average incentive package in February was equal to about 7 per cent of average transaction prices, or about $3,392. One year ago, it was 6 per cent. Kelley Blue Book also noted that incentives for electric vehicles increased.
Higher interest rates are also contributing to increased consumer costs, and monthly payments have jumped. All of these factors contribute to a much more challenging buying environment, with significant “sticker shock” among those who have been out of the market for several years.
For example, a consumer who bought a $19,550 Ford Focus SE in 2019 with a 4.5 per cent interest rate would have had loan payments of $367 per month. If they replaced that car with a similar model priced at $27,770 and an interest rate of 7.5 per cent, the monthly payment would jump to $555. Though the vehicle price was 42 per cent higher, the monthly payment increased by 51 per cent. This is likely to keep entry-level buyers on the sidelines or push them in the direction of used vehicle choices.
The new presidential administration in the U.S. is likely to roil the industry waters, the group said, through the implementation of tariffs on fully produced vehicles as well as parts coming in from other countries.
“This has the potential to increase prices further as the cost of those tariffs are passed along to consumers in the form of elevated prices,” Cloud Theory’s announcement said.
Image credit: Depositphotos.com
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