Growing inventory boosts July incentives, led by EV offers

The deals are back in America's new-car showrooms.

Automaker spending on new-vehicle incentives rose sharply in July compared with the year-earlier month, driven by electric vehicle offers, luxury car lease deals and growing inventory across the industry, according to estimates by Motor Intelligence and J.D. Power.

Incentives averaged $2,151 per vehicle last month compared with $1,174 in July 2022, according to Motor Intelligence, with EV startup Lucid Motors leading the way with $12,907 on the Air sedan. J.D. Power estimated July incentives at $1,830 per vehicle compared with $908 in the year-earlier month.

"The reason automakers are spending again is that retail inventory is growing," said Tyson Jominy, vice president of data and analytics at J.D. Power. "Last year it was under 800,000 retail units but this year is over 1.2 million. Production issues are quickly receding into the background, and as production goes up, inventory on the ground will increase."

Incentives as a percentage of sticker price rose to 3.9 percent per vehicle in July vs. 2 percent in the year-earlier month, J.D. Power said.

Deals on EVs, with a higher days' supply than combustion vehicles, are driving overall industry spending on spiffs, analysts said.

"EV incentive spending is closing in on $4,000 per unit," Jominy said. "At $3,986, it has more than doubled from last year." In comparison, incentive spending on combustion vehicles was at $1,899 last month, according to J.D. Power.

Tesla sharply increased discounts in addition to making deep price cuts, starting in January, across its four-vehicle lineup. Tesla's incentives reached $2,506 per vehicle in July compared with $572 in the year-earlier month, Motor Intelligence said. Tesla CEO Elon Musk has said the automaker is willing to sacrifice profits for volume.

While EV sales are increasing, production of electric vehicles at Tesla, Ford and others is outstripping demand, analysts say. Cox Automotive estimates that second-quarter EV share of the light-vehicle market rose to 7.2 percent from 5.7 percent in the year-earlier period.

EV oversupply "is impacting nearly every electric vehicle, from relatively low-priced cars like the Tesla Model 3 to high-priced nameplates like Lucid," said Karl Brauer, executive analyst at iSeeCars. "And it's not just luxury brands. Ford is facing challenges with the F-150 Lightning and [Mustang] Mach-E."

According to Motor Intelligence, incentive spending at EV maker Polestar rose to $7,928 per vehicle in July from just $979 in the year-earlier month.

Brauer said the overall rise in incentives is a result of improving supply chains in the post-pandemic period, which along with higher interest rates and dampened consumer confidence is forcing automakers to entice buyers with attractive deals.

"While we're not back to pre-pandemic pricing yet, it's obvious automakers and dealers are having to actually work for sales again, and incentives are the old standby tool when that happens," Brauer said. "While I don't foresee drastic swings in mainstream [combustion] models, we've already seen big drops in EV pricing, and I think that will continue."

The return of leasing, which fell sharply when vehicles were scarce, is also driving incentive spending, especially in the luxury segment, analysts said.

Mercedes-Benz incentives rose to $3,479 per vehicle in July compared with $1,391 in the year-earlier month, Motor Intelligence said. BMW incentives rose to $3,583 last month compared with $1,453 a year earlier. And Infiniti's reached $5,613 per vehicle in July, compared with $2,470 a year earlier.

Lease spending overall, Jominy said, rose to just over $6,000 per vehicle last month from $3,500 in July 2022. For premium brands, lease spending was $8,815 last month.

"As inventory increases, we will see deals increase, both from automakers in the form of incentives and from dealers as prices discounted off MSRP," Jominy said. "All in, this should be good news for consumers in the second half of the year, as both selection will improve and prices will moderate."

July was a good example of how rising incentives are contributing to an improving sales climate.

A buoyant economy and improving stockpiles helped push light-vehicle deliveries up 15 percent to some 1.3 million in July from depressed levels a year earlier, GlobalData said in a preliminary report.

The seasonally adjusted, annualized rate of sales tallied 15.9 million last month, Motor Intelligence said, just within the range of forecasts of 15.9 million to 16.1 million but up sharply from July 2022's rate of 13.5 million. The SAAR has now tallied roughly 15 million or more each month this year.

"The outlook for the remainder of the year remains positive into 2024," said Jeff Schuster, head of GlobalData's automotive practice. "Resilience in consumer purchases remains the driving factor that is supporting the industry and the economy."

GlobalData said inventories stood at 1.9 million light vehicles on Aug. 1, up 14 percent from Aug. 1, 2022, with days' supply still suppressed at 36 but up from 28 days a year earlier.

Among automakers that report monthly sales, Toyota, Ford and Honda continued to rebound, while U.S. sales rose for the 12th consecutive month in July at Hyundai and Kia.

Toyota Motor North America's sales rose 8.1 percent to 191,684 for the Toyota and Lexus brands combined. Ford Motor Co. said its July sales rose 6.1 percent, with light pickups up 8.7 percent.

American Honda's combined deliveries rose 57 percent to 111,762 at Honda and Acura.

Subaru of America's U.S. deliveries have now rebounded for 12 straight months, with July volume jumping 21 percent to 50,389.

Deliveries rose 11 percent to 72,857 last month at Hyundai Motor America for the Hyundai and Genesis brands combined. And Kia America set a July sales record of 70,930, up 14 percent.

Also posting better sales was Volvo Car USA, with a 57 percent rise in July to 10,785 vehicles.

Among the seven automakers reporting for July, sales rose 16 percent to 711,671. The only brand posting negative numbers was Lincoln, down 4.4 percent compared with July 2022.

David Phillips contributed to this report.