Carmakers are playing a dangerous game when it comes to auto sales (F, GM)

pulse

June 1, 2017 3:00 PM

Incentives have surged, prompting negative comparisons with past sales booms when car companies frittered away their profits.

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•Incentives are surging.

•But transaction prices are also high.

•Carmakers don't want to lose sales as the US market share situation tightens.

Automakers are reporting May US sales throughout Thursday. The pace is expected to run a bit lower than May 2016, when it was over 17 million; May 2017 should come in just below that figure.

After record sales years in 2015 and 2016, when 17.5 and 17.55 million vehicles respectively rolled off dealer lots, there's been a lot of chatter in 2017 about sales plateauing as demand flatlines and used cars return to the market, moderating new car sales.

However, against those trends, we currently have an economy at full employment and abundant credit, as well as low gas prices.

So the market is actually pretty hard to call. It could actually beat 2016's record in 2017, if the summer selling season is robust and the carmakers finish the year strong.

For now, automakers are playing a game of chicken with the inevitable downturn. Incentives have surged, prompting negative comparisons with past sales booms when car companies frittered away their profits in an effort to capture and maintain US market share.

"While demand for new vehicles is still relatively strong, it's a bit of smoke and mirrors," Jessica Caldwell, Executive Director of Industry Analysis at consumer auto site Edmunds.com, said in a statement.

"Dealers and OEMs really pushed the deals over the holiday weekend to prop up their May numbers. Incentives were up sharply, and it seems automakers are putting more cash on the hood to nudge car shoppers to buy versus lease. Finance incentives were up 33 percent year over year in May, compared to a 28 percent rise in lease incentives and an 18 percent lift in cash incentives."

Again all that cash, automakers have a countervailing trend: transaction prices.

"Transaction prices continue to climb at a steady rate, driven by the weakening sales mix of cars which is estimated at 38 percent in May, down from 41 percent one year ago," Tim Fleming, an analyst for Kelley Blue Book, said in a statement.

The average price being charged for a new car was

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