Despite June’s Disappointing Sales, Automakers Hold the Line on New Car Incentives

In response to June’s disappointing sales numbers, automakers have extended incentive programs, increased rebate amounts and enhanced their financing terms on new cars and light trucks.

In June, U.S. light vehicle sales rose by a modest 14% compared with the same month in 2009. Demand was down from the previous month and any chance of a strong rebound during the second half of the year seems unlikely. senior analyst Jessica Caldwell is confident that automakers will spend more on incentives than expected. “We will see more generous incentives in July,” she said. According to Edmunds, the average per-vehicle incentive spend in July will match or exceed the $2,600 level reached in June.

Although inventories have risen over the last month, they are still at historically low levels.

Ford Motor Company, General Motors Company and Chrysler Group all began the month with at least a 60-day inventory based on current demand. Industry-wide inventories at the beginning of the month were up to a 54-day supply form a 48-day supply on June 1.

Caldwell said the increased inventories mean automakers won’t have to resort to “rock-bottom pricing” as they await the arrival of the new 2011 models.

In addition to keeping their inventories in line with demand, automakers have also reduced factory capacity and implemented other cost-cutting measures which, combined, should allow them to turn a profit even at the current sales levels.

J.D. Power and Associates executive director of forecasting, Jeff Schuster, said June incentive spending averaged about $2,800 per vehicle. He said incentives have remained at a fairly constant level following last March’s generous offerings. He expects automakers to chart their future spending on sales result from the July 4 holiday weekend. Most automakers had timed their last round of incentives to expire on July 6.

Schuster said, “We are still sitting on low inventory levels. There is not a huge need for a summer clearance, but counter to that we are in a bit of a stalled recovery.” He said he would not be surprised to see some automakers marginally increase their spiffs for the remainder of the summer in order to increase foot traffic in their showrooms.

He also said he expects J.D. Power to lower its current new vehicle sales estimate by “a couple hundred thousand units, unless July gives us a nice surprise.” J.D. Power had previously projected U.S. sales to reach about 11.8 million units this year.

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