Should I Buy A New Car? JD Power Predicts Increased Incentives For Rest Of Year

A J.D. Power forecast indicated Wednesday U.S. car buyers can expect steep end-of-the-year discounts as dealers try to clear inventory of older models, a trend that threatens “the health of the industry.”

This year is expected to see the steepest decline in auto sales globally year-over-year since the Great Recession.

The forecast predicts discounts for older models of more than $4,500, the highest ever, topping last year’s $4,378, and annual percentage rate financing of 5.3%, the lowest since February 2018. At the same time, incentives on 2020 models are expected to climb 13% to $3,723.

The moves will push incentive spending to more than 11% of manufacturer’s suggested retail price for the first time in more than a decade.

The forecast pegs November new-vehicle retail sales to top 1.18 million units, up 1.2% from last year.

“Strong promotional activity over the holiday weekend is expected to drive spending to the highest level ever,” said Thomas King, senior vice president of data and analytics at J.D. Power.

King noted incentives could increase as much as 4% next month, “which would continue to drive overall spending to unprecedented territory. This is concerning for the health of the industry when combined with rising sub-prime sales, which are growing at the highest rate since August 2018.”

New-vehicle sales were expected to average $34,054 for November, down from last year’s $33,488, with trucks and SUVs accounting for 72.7% of new-vehicle sales.

Fleet sales were expected to be down from last year, to 261,800 units.

“The monthly selling rates for autos have given mixed signals during the second half of 2019, but the overall level remains robust. Volatility has replaced the typically strong selling rate pattern of the last five years,” said Jeff Schuster, president of Americas operations and global vehicle forecasts for LMC Automotive.

“North American production is expected to decline nearly 4% to 16.3 million units in 2019. This overall uneasiness is causing a pullback in investment and decision-making, which risks turning into a self-fulfilling recession prophecy.”

Globally, vehicle sales are on track for a 4% drop for the year, Fitch Ratings predicted, with demand from China down 11%, in part because of the government’s end of subsidies on electric vehicles. Global car sales were expected to be down 3.1 million units for the year.

"The downturn in the global car market since the middle of 2018 has been a key force behind the slump in global manufacturing and the car sales picture is turning out a lot worse than we expected back in May," Brian Coulton, chief economist at Fitch Ratings, said in a statement Monday.