Thanks to large incentives, the captive financing arms of auto companies have now taken over 50 percent of the new car financing market, up from 37 percent last year. With half of all car loans now financed by carmakers, financing is a serious sales tool for dealerships.
While car sales grew in 2014 (16.8 million annualized, up from 15.6 million last year and 10.4 million in 2009), incentives grew too, which pushed more customers to the captive finance arms offering those incentives.
The average incentive per new car sold so far during 2014 was $2,918, which is slightly more than the same period last year’s incentives of $2,825. That $93 increase in incentives matches up with a typical year-to-year price increase. For example, the 2015 Acura ILX will be $150 more than the 2014 model. So cars are getting a bit more expensive, but carmakers are upping incentives to match.
The increase in incentives might have a detrimental effect on carmaker profits in the future. The boon in sales and leases now will mean that there are more used cars on the market in three years when those leased vehicles come back to dealerships, which could drive prices down.
Source: Reuters
