DETROIT (Reuters) - A one-two punch of bad weather and overproduction has ignited a price war among U.S. car dealers and manufacturers.
Frigid temperatures and winter storms in the past six weeks have slowed retail sales and showroom traffic, inflating inventories of unsold vehicles and triggering a new round of steep discounts by carmakers and their dealers.
While many analysts believe the spike in incentives is a short-term reaction, “the danger is that this could be the beginning of an escalating arms race for market share,” said Eric Lyman, vice president for industry consultant ALG.
But Japanese automakers Toyota Motor Corp (7203.T) and Honda Motor Co (7267.T), two companies that historically have shied away from incentives, also are heavily discounting their popular mid-size family sedans, which like the big trucks have been hit hard by the weather-induced slowdown.
Honda Accord sales in January dropped 14 percent from the previous year, causing inventories to climb to 114 days, from 71 days at the end of December, according to research firm Autodata. Honda’s U.S. arm has responded by maintaining an aggressive spending rate, with customer and dealer incentives up 300 percent from a year ago, according to auto analyst Joseph Spak of RBC Capital Markets.
As part of a nationwide Presidents Day sale, Honda is offering inexpensive lease deals and low-interest loans on the 2014 Accord.
On Wednesday, Premier Honda of New Orleans was selling a 2014 Accord EX-L sedan at a $3,091 discount off the car’s $29,060 suggested retail price.
Honda of Bellevue, Nebraska, was offering to lease a 2014 Accord LX sedan for $269 a month with zero down or $199 a month with $2,500 down. Customers could also elect 0.9-percent financing for up to 60 months.
Toyota Camry sales in January dropped 27 percent, pushing inventories higher and inducing Toyota Motors Sales USA to hike incentives 38 percent from a year ago, according to RBC. Camry customers can choose from zero-interest financing, low lease rates or a rebate of up to $1,750.
If sales don’t pick up soon, Spak said, “Toyota may have to revise current (production) schedules and/or utilize still higher incentives.”
In the meantime, Eddy’s Toyota of Wichita, Kansas, was offering to lease a 2014 Camry SE sedan for 24 months at $189 a month with $2,340 down. Bill Penney Toyota of Huntsville, Alabama, was selling a 2014 Camry L for $4,260 off the $24,042 sticker.
The Detroit-based automakers are not immune to the discount wars.
Sales of the mid-size Ford Fusion, which competes with the Camry and the Accord, dipped nearly 8 percent in January and inventories climbed to 97 days. Ford has responded by offering customers a choice of cut-rate financing, cheap lease rates or cash rebates of up to $2,000.
Ford dealers are providing even deeper discounts. According to research firm TrueCar, the parent of ALG, U.S. dealerships are selling the 2014 Fusion at an average discount of $2,581, or 11 percent below the sticker price.
On Wednesday, Watertown Ford, outside Boston, was offering a 2014 Fusion Titanium sedan at a $4,744 discount off the $35,650 retail price.
Luther Family Ford of Fargo, North Dakota, was selling a similar 2014 Fusion Titanium at $4,545 off the $36,365 sticker.
While analysts such as Joseph Amaturo of Buckingham Research Group expect automakers and dealers to be forced to maintain and even raise discounts if sales continue to founder in February and March, at least one observer believes the longer-term outlook is more positive.
Given that the average age of U.S. vehicles is at a historic high of nearly 12 years and up to 1.5 million new drivers a year are expected to enter the market over the next five years, “U.S. sales can be sustained at a relatively high level” through 2019, according to analyst Michael Ward of Sterne Agee.
“In our view (that) will produce record financial results for the industry.”
Reporting by Paul Lienert in Detroit; Editing by Meredith Mazzilli