Photographer: Matthew Busch/Bloomberg

Automakers Offer Massive Rebates to Move Surplus of SUVs

  • Rebates rise, pricing deteriorates as competitors pile in
  • U.S. inventory bloat also putting pressure on slowing segment

Sport utility vehicles, overtaking sedans as the new American family car, have been so hot that automakers raced to supply the market. With inventory now piling up, profit-sapping rebates are on the rise.

Incentives on SUVs rose $704 from a year earlier to $3,663 last month, according to J.D. Power dealer data obtained by Bloomberg. That average was up 24 percent, compared with the 13 percent rise for the total market, per the Power Information Network data, which isn’t released publicly.

The depth of discounting on the market’s most popular models signals automakers in the U.S. may be gasping for growth after seven years of expansion. It also reflects the downside of the industry building up inventory of the still-lucrative models as automakers rush to get in on the action.

“The competition in the SUV segment is fierce and is going to heat up even further as you have more new entries and redesigns,” said Jeff Schuster, an analyst with researcher LMC Automotive. “That competitive pressure will intensify as the year progresses. There’s more price pressure ahead.”

The upcoming Presidents’ Day weekend boasts a bonanza of deals. Ford is offering no-money-down, $199-a-month leases on base model Escapes in some western U.S. markets. Jeep is advertising as much as $4,500 off the 2017 Cherokee or a lease on the outgoing 2017 Compass for $119 a month with $2,999 due at signing.

And deals are extra rich on remaining 2016 SUVs. Chevrolet is offering outgoing Tahoe and Suburban large SUVs with no-interest loans for 72 months and as much as $5,000 in cash. These offers follow a month in which even the nation’s top-selling SUVs sold with enhanced incentives, according to the PIN data. Incentives on the Honda CR-V rose about $700, while discounts on the Toyota RAV4 climbed by about $1,000.

Self-Inflicted Pressure

Some of the price pressure has been self-inflicted by automakers stockpiling SUVs. Factories cranked them out at an accelerated pace in the fourth quarter after manufacturers were caught short when the boom began, LMC’s Schuster said. As of Feb. 1, automakers had more than 1.6 million SUVs in inventory, up 34 percent from a year earlier, according to LMC.

“There was an overbuild of SUVs,” he said. “The manufacturers wanted to make sure they’re not caught without SUVs to sell.”

The shift to sweeter deals also reflects a slowing of the torrid pace of growth for SUVs, which last year outsold traditional passenger cars for the first time. After growing 16 percent in 2015, sales for the segment rose about 8 percent last year.

“It exploded over the last five years,” Schuster said. “But that’s not sustainable.”

Automakers have been able to afford bigger discounts because profitable light trucks -- pickups, minivans and SUVs -- now account for more than three out of every five sales, according to Mike Jackson, the chief executive officer of AutoNation Inc., the largest dealership group in the U.S. SUVs alone accounted for almost 40 percent of all vehicles sold in the U.S. last year.

Changing Equation

“If you look at transaction prices compared to, say, five years ago, both due to mix and price increases, it’s up over $4,000 a car,” Jackson said on a Feb. 3 conference call with analysts. “So they’re putting another $1,000, let’s say, in incentives -- so what?”

That equation may be starting to change. As SUV incentives rose in January, the average transaction price on those models fell by $733 to $33,140, according to the J.D. Power data.

SUVs still remain the wheels of choice for a growing group of buyers. More potential upside remains as the 80-million member millennial generation moves deeper into their family years and snaps up more of the kid-friendly rigs.

LMC projects SUVs will grow to 43 percent of the U.S. market by 2024, from 30.7 percent in 2012.

“It’s certainly plausible to look at SUVs as 50 percent of the market,” Schuster said. “It’s not out of the realm of possibility.”

(Updates fifth paragraph to show revised Compass price.)
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