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February 27, 2018 01:00 AM

February U.S. auto sales forecast to fall as incentives dip

Michael Martinez
Automotive News
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    David Phillips, Automotive News
    J.D. Power says U.S. transaction prices for new vehicles in February were on pace to hit a record for the month, at $32,237.

    DETROIT—U.S. new-vehicle sales are expected to fall this month as the market continues to cool from its pace of recent years and auto makers dial back on incentives.

    Forecasts from Cox Automotive and Edmunds call for sales to drop about 4 percent year over year from February 2017, to about 1.27 million vehicles. A forecast from LMC Automotive and J.D. Power projects a 2.1 percent decline, to 1.3 million. It would be the industry's third decline in the past five months and 11th in the past 14.

    LMC/J.D. Power says that will result in a seasonally adjusted annual rate of sales of 17.1 million vehicles, while Edmunds forecasts a 16.8 million SAAR and Cox calls for a 16.7 million SAAR. All three figures are below last month's rate of 17.18 million and the February 2017 rate of 17.46 million.

    Auto makers will release February sales figures on Thursday. There are 24 selling days in February, the same as last year.

    "This year is going to be a bitter but necessary pill for the auto industry to swallow," Jessica Caldwell, Edmunds executive director of industry analysis, said in a statement. "Auto makers are slowing production of passenger cars to react to declining demand, and are also trying to find the right balance between keeping sales strong and becoming too dependent on costly incentives. The industry is still in a fairly healthy place, but it may not feel like it since the last few years have been in record territory."

    J.D. Power says that, despite numerous Presidents Day promotions, incentive spending was down slightly through the first three weeks of the month compared with February 2017.

    "The decline in spending is particularly notable given that incentives have risen consistently since 2013," Thomas King, senior vice president of the data and analytics division at J.D. Power, said in a statement.

    Caldwell agreed that auto makers are taking a more cautious approach to discounts.

    "In a down market every sale is important, but this year auto makers seem to be a bit more measured in how they're using incentives," she said. "Aggressive incentives generally only pull forward existing demand, and auto makers seem to be learning the lesson that you can only borrow so much from the future before you end up paying for it."

    There are still positive indicators. J.D. Power says transaction prices in February were on pace to hit a record for the month, at $32,237. It predicts consumers will spend $32.2 billion on new vehicles for the month, slightly below last year's level.

    Edmunds and Cox said they expect Volkswagen Group of America to pace the industry. Edmunds projects a 2.9 percent sales gain for VW, while Cox predicts a 5.8 percent rise. Sales for most other auto makers are expected to fall.

    Edmunds expects Ford, Fiat Chrysler, Nissan and Hyundai/Kia will lose market share while other major players will gain.

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