J.D. Power: Incentives not likely to break 5% until 2024

Automakers typically offer incentives when interest rates rise, but they aren't doing so today and they aren't likely to do so next year, according to a J.D. Power expert.

J.D. Power expects automaker incentive spending to remain below 5 percent of sticker through about the second half of 2024, Kristen Lanzavecchia, director of industry solutions for J.D. Power, said at the Auto Finance Summit on Oct. 28. Sweeteners are forecast to increase after that, she said.

Incentives used to represent 10 percent of the sticker price, fellow panelist Jeremy Robb, Cox Automotive senior director of market insights and business solutions, said at the summit. Now, they are 2 percent, he said.

"They're staying super-low," Robb said.

Manufacturers spent 2.3 percent of sticker on incentives through October this year and 6 percent of sticker in the same period last year, according to J.D. Power. Both figures are lower than any of the previous eight years — all of which saw incentives between 8.4 and 10 percent of sticker.

Robb said new-vehicle supply hit a floor of 26 days earlier this year but is now around 40 days. Inventory remains below a pre-pandemic 90-day supply, he said.

The supply situation was "totally different" than these macro numbers when the industry was segmented by make, Robb said.

Some brands were above the industry average, while others were far below it.

Robb said some automakers will begin to boost incentives, predicting it will be a matter of who has supply and "who needs to push the product," but the industry isn't at that point yet. "That might be 2023," he said.

Significant demand remains from commercial customers, and automakers might supply rental car companies or fleets before resorting to incentives, Robb said.

Alex Yurchenko, chief data science officer for Black Book, said his company feels automakers will resume "fighting for the market share" with incentives once production returns to normal. But he said Black Book doesn't expect incentive spending to reach the 10 to 11 percent of sticker encountered prior to COVID-19.

Automakers' incentive spending can have a ripple effect on used-vehicle prices, according to Robb. He said stacking a large incentive onto a deal creates a "ghost figure" that fosters depreciation.