Interest rates and automaker discipline will be two critical factors in how car dealers fare this year.
Last year, the industry benefited from reductions in incentive spending, strong used-car sales, higher new-car price transactions and better per-vehicle margins, according to Thomas King, president of data and analytics for J.D. Power.
But 2020 results could be hurt if interest rates rise again — a situation that spooked buyers in 2018 — or if manufacturers fail to control factory output, King told an audience here at Friday's J.D. Power Auto Summit.
Average transaction prices, net of incentives, rose to $33,900 last year, up from $33,500 in 2018, according to J.D. Power. The average interest rate on new-vehicle loans fell from 6.1 percent in first quarter 2018 to 5.3 percent by the end of 2019, King said.
At the same time, per-vehicle incentives fell across the industry in the early months of 2019 after years of steadily creeping higher.
"But that was short-lived," King said. "The automakers didn't follow up with discipline on production."
High volumes of additional vehicles coming into the market last year triggered a new wave of discounting, he noted. The year ended up with average incentive spending increasing to $4,600, up from an average of $4,400 in 2018.
But King reported that "crazy discounts," as he labeled them — meaning price incentives of more than 15 percent of the value of the vehicle — fell sharply last year.
In 2018, 25 percent of the industry's models had discounts of more than 15 percent, according the J.D. Power's data. Last year, the number of crazy discounts fell to 17 percent of models.
"The percentage of high incentives fell because manufacturers are beginning to do a better job of matching products to what consumers really want," King said.
But that progress will be tested this year, he said. If sales soften, manufacturers could become more aggressive to maintain volumes.
King added that two other areas of concern for industry forecasts are the presidential election and the uncertainty of the industry's supply chain from China.
Chinese manufacturing has become a vital piece of North American auto production. But over the past year, the China pipeline has been vexed by trade tussles with the Trump administration, and more recently by the threat of coronavirus-related work stoppages.
King admitted that the industry simply doesn't know what will happen this year with China.
But any concern over the presidential election year is unfounded, he said.
"Historically, we can see that presidential elections have no impact whatsoever on car sales," he said. "It won't be an issue."