US: slow January sales could spur rebate war image

Automotive investors – apparently accustomed only with huge sales gains – are starting to feel increasingly worried that January’s slower sales trend might go on, triggering another incentive race like the one that led to the last auto industry recession.

Siding with the investors, automotive analysts also warn that all the necessary ingredients are there, as January’s bad weather affected sales and now dealers have the cars piling up on their lots.

“Rising inventory levels combined with several more waves of bad weather will result in a short-term spike in incentives,” said Eric Lyman, vice president of Editorial and Consulting for ALG, formerly known as the Automotive Leasing Guide. “The danger is that this could be the beginning of an escalating arms race for market share.”

In 2013, with the new vehicle sales up more than 1 million units compared to 2012, reaching 15.6 million units, allowed the automakers to tone down incentives and even increase prices to crank up profitability.

There is, however, according to editor Karl Brauer, of Kelley Blue Book, “the very real possibility of an incentives war if sales don’t pick up in the coming weeks.”

As January is usually a very cold month that might make shoppers think twice before going into a shopping spree, the US new car sales industry is coming in February and March, with the automakers waiting to see if sales recover before making any drastic price cuts.