Tuesday, 24 April 2018
Car News

Incentives, inventories are top concerns among executives


Dietmar Exler: “Overall, the market is more challenging. It’s not going to get easier.” Photo credit: BLOOMBERG

NEW YORK — Auto executives are cautiously optimistic about sales in 2017. But that doesn’t mean solid if unspectacular gains; it means flat — or even down slightly from last year’s record of 17.54 million.

March U.S. sales slipped 1.7 percent despite higher spending on discounts and incentives, suggesting the long sales boom that gave the industry seven years of gains could be coming to an end.

“We are over the top” of the peak in the current sales cycle, said Bob Carter, executive vice president of sales for Toyota Motor North America, at the NADA/J.D. Power Automotive Forum ahead of the New York auto show. Carter said the company predicts industry sales will be between 17 million and 17.2 million, but even if sales hit lower forecasts of 16.7 million to 16.8 million, he would still consider that a strong market.

But the looming question is how automakers will act with sales at that level. Will they let the market settle naturally by cutting production, or will they artificially boost sales with excessive rebates?

“All indicators show the market is increasingly competitive,” said Lex Kerssemakers, CEO of Volvo North America. “We’ve put a lot of pressure on ourselves and it’s not sustainable. Discounts are increasing again, especially in the luxury part of the market, and it’s not a healthy development.”

Incentives rose in March, according to Edmunds, hitting an average of $3,120 for cars and $3,400 for pickups and SUVs. Carter said he believes the increased incentives are due to a swing in consumer demand from cars to light trucks, a trend he said began in late 2015.

“Regardless of what franchise or brand you represent, I bet you have too many cars and are probably about right with trucks today,” he said. “Once the industry starts to get the pipelines tightened up to where demand is, perhaps we will be able to relax on incentives.”

Dietmar Exler, CEO of Mercedes-Benz USA, said he thinks volatility is increasing, and rising incentives will put pressure on the entire industry.

“Overall, the market is more challenging,” he said. “It’s not going to get easier.”

That said, Exler expects the luxury segment, including Mercedes-Benz, to show a “little bit” of sales growth for the year.

“Because many of the luxury players are bringing new models in more financially affordable categories, that will drive some growth on the luxury players’ side,” Exler said. “I’m very bullish on Mercedes with all the new models we are having.”

While sales of SUVs and crossovers continue to increase, the total U.S. market has peaked, said Ian Robertson, BMW AG board member in charge of global sales and marketing.

“Overall, there is too much inventory in this marketplace,” Robertson said. “Therefore there is a lot of push in the market. It’s one of the things we stepped back from last year. We’re keeping our inventories tight this year, too.”

Robertson expects BMW sales to rise only slightly in coming months and maybe even decline during some months as the brand replaces some models in its lineup. During the next two quarters, for instance, BMW will sell down the current X3 crossover and then introduce a redesigned model.

“I don’t see much upside in the U.S. market at the moment,” Robertson said.



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