Automakers continue to increase the incentives they’re offering on new vehicles sold in Canada, and that’s keeping business brisk for dealers.
The average incentive amount on a new vehicle purchased during the third quarter was $6,109, up 2.8 per cent from a year earlier, according to J.D. Power Canada.
Slow-selling cars and hot-selling trucks are contributing to the increase, said Robert Karwel, a senior manager at J.D. Power.
Currently, light trucks make up 70 per cent of a Canadian industry on pace for a record year, and that number continues to grow, Karwel said.
“Incentive spending will rise as a result because SUVs and light-trucks typically have more incentives on them because they are more expensive to begin with,” Karwel said. “For example, half-ton pickups have in excess of $10,000 in incentives on them throughout most of the year.”
Incentives as a percentage of the average sticker price of all new vehicles stood at 15.9 per cent in the third quarter, flat from 15.7 per cent a year earlier.
THE CAR CHALLENGE
But when it comes to cars, automakers were selling for less and incentivizing more. The average transaction price on a new car in the third quarter was $24,881, down 4.2 per cent from a year earlier.
Incentives as a percentage of the average sticker price of a car stood at 16.1 per cent in the third quarter, up from 14.2 per cent a year earlier.
Also during the third quarter, the average incentive amount per car rose 11 per cent to $4,680.
“Passenger cars continue to challenge the industry. Car inventory is increasingly difficult to sell,” Karwel said. “So there is also pressure for unsold passenger cars to have better deals on them to get them to move.”
The incentives per truck unit actually fell 1.5 per cent during the third quarter, down to $6,794 per vehicle.
“While trucks do have more dollars on them, the growth in incentive spending is also being driven by OEMs having to offer more dollars on cars than in the past to get them to move,” Karwel said.
The average car took 79 days to sell during the quarter while light trucks took 62.
PRAISE FOR SPIFFS
AutoCanada Inc. CEO Steve Landry praised automakers’ aggressive incentive spending when he spoke during a third-quarter earnings call on Nov. 11.
The publicly traded dealership group reported a third-quarter gross profit of $138 million, up 12.2 per cent. New-vehicle sales at AutoCanada, one of the nation’s largest dealership groups, rose 9.4 per cent from a year earlier to 12,014 units. Sales nationwide, in the meantime, rose 6.8 per cent.
“Well-planned OEM programs on particular products created successful alignment for our dealership sales. As we were rolling into the 2018 model year, the OEMs were beefing up incentives on 2017 models,” Landry said.
When it comes to just 2017 model-year vehicles, the average incentive amount spent between Jan. 1 and Sept. 30 increased $200 to $6,150 per unit when compared with the first nine months of last year. Over the same time frame in 2016, the incentive amount on a 2016 model-year vehicle was $5,950.