Automakers rev up discounts to beat coronavirus sales blues

Automakers rev up discounts to beat coronavirus sales blues

In the midst of a raging pandemic, Belal Bilto, 26, a sales executive and a Manhattan resident bought a midsize pickup Jeep Gladiator this month for just over US$48,000, lured by a discount of about US$5,000 on the list price and a seven-year, no-interest loan.

FILE PHOTO: Unused rental cars fill the Dodger Stadium parking lot as the spread of the coronavirus
FILE PHOTO: Unused rental cars fill the Dodger Stadium parking lot as the spread of the coronavirus disease (COVID-19) continues, in Los Angeles, California, U.S., April 7, 2020. REUTERS/Lucy Nicholson/File Photo

REUTERS: In the midst of a raging pandemic, Belal Bilto, 26, a sales executive and a Manhattan resident bought a midsize pickup Jeep Gladiator this month for just over US$48,000, lured by a discount of about US$5,000 on the list price and a seven-year, no-interest loan.

For Bilto, who was laid off in March, and his fiancé Sabrina Moller, 28, a private chef, a car seemed a safer option to travel around during the virus outbreak. Most importantly the couple bought the truck to support a new boutique mobile catering venture.

"We went specifically for the Gladiator because the model was (being offered at) employee pricing and we also got free service after 1,000 miles and a free repair offer for a serious accident," Bilto told Reuters.

U.S. automakers are scheduled to report June and second-quarter car and light truck sales on Wednesday. Analysts are forecasting June sales will fall by 25per cent from a year earlier. That's an improvement from the declines in April and May, reflecting a slow recovery in retail demand hit by coronavirus shutdowns.

The second-quarter numbers reflect a peak for the U.S. auto industry's efforts to use consumer discounts, low interest loans and other incentives to prop up demand during the pandemic.

Since March, U.S. automakers have rushed to prop up demand with rich incentives to keep sales moving. The deals have been good enough and over the next few months, industry officials and analysts say sales could be hurt because of tight inventory.

"The speed at which the (automakers) stepped in to support the franchised dealer network as well as the retail consumer is historically significant," auto retailer Lithia Motors' Chief Executive Officer Bryan DeBoer told Reuters.

On a per vehicle basis, spending on discounts was at record levels for June at about US$4,441 per unit, a significant 12per cent increase from US$3,966 per unit for June 2019, according to automotive consultancy firm J.D. Power.

In April, a month after automakers halted production due to the coronavirus outbreak and a massive 40per cent decline in sales, per vehicle spending peaked at about US$5,000 for the year, jumping about 40per cent from the same period a year earlier.

"The top three automakers have packed in aggressive incentives with extended financing at 0per cent rate for 84 months in addition to payment deferrals for up to six months," said Tyson Jominy, vice president of data and analytics at J.D. Power.

"Before COVID, only 7per cent of all sales represented loan terms for 84 months. That metric shot up to 21per cent during the peak," Jominy said. "That's unprecedented."

Lower sales volumes mean automakers can offer hefty discounts per vehicle, while still shrinking overall spending. Total incentives offered by automakers since March until June end are estimated to be down about 12per cent to US$18.6 billion, from a year earlier, as sales volume have fallen 28per cent, according to J.D. Power.

(Reporting by Rachit Vats and Ankit Ajmera in Bengaluru; Editing by Joe White and Shounak Dasgupta)

Source: Reuters

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