J.D. Power & Associates, one of the leading analysts in the auto industry, issued a warning yesterday that dealership promotions are driving down vehicle value, which could hurt car sales in the years ahead.
At the J.D. Power Automotive Summit, analysts said that dealers and manufacturers have participated in too many incentive programs recently, lowering the initial cost of new vehicles, which has the potential to lower their resale value down the line.
“Overall, auto sales figures continue to post strong results, but when you peel back just one layer beneath the surface, some worrisome trends are taking hold,” said Thomas King, vice president of Power Information Network at J.D. Power. The analysis goes on:
“Chief among the trends is the fact that first quarter sales incentives averaged 9.6% of MSRP, a 70 basis-point increase from last year and are trending toward levels observed at the height of the recession.
The increased spending, which is due primarily to manufacturers trying to offset a shift in demand from cars to trucks and SUVs, has the potential to reduce future resale value. Significant declines in the value of used cars would disrupt consumers’ ability to buy new vehicles (due to lower trade-in values), while vehicle manufacturers and lenders would have to deal with exposure on their lease portfolios (if off-lease vehicles fail to achieve their expected resale value).”
This means that in the short term, consumers are paying less for new cars – but those vehicles will not retain their value over time. This could cause a cycle where it becomes harder for consumers to buy new cars.
If you want to check the current value of your vehicle, you can use our free vehicle value search service.