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Incentives keep US vehicle market sky high

American dream: Manufacturer incentives are pulling record numbers of car buyers into US showrooms to snap up vehicles such as the Chrysler 200.

American buyers sweep up cheap vehicles in record numbers – but for how long?

13 Jan 2016

UNITED States light vehicle sales that soared to a record 17.4 million vehicles in 2015 are forecast to edge higher again in 2016 on the back of hefty manufacturer incentives, easy credit, low fuel prices and high consumer confidence.

But some US motor industry analysts are warning that the current car sales boom is showing cracks, with incentive spending by manufacturers reaching an average of 8.8 per cent of new car price or about $3000 a vehicle, and more than 40 per cent of new-car buyers taking out loans, many tempted by cheap interest rates.

The worry is that the flood of lease cars from five straight years of growing sales are due back on the market in the next few years, putting strains on the new-vehicle market.

As well, some of the US’s major export markets are weakening, causing a log jam of some vehicles at factories.

US National Automobile Dealers Association (NADA) chief economist Steven Szakaly said on the eve of the Detroit motor show that the US should enjoy its seventh successive year of automotive sales growth in 2016, with sales rising about 2.0 per cent, to 17.7 million units.

“We are living peak auto sales right now, and we will see one more year of that growth in 2016, but only because of rising incentives that will keep consumers coming into showrooms,” he said.

“The real worry now is whether we’re starting to pull sales ahead from future years.”

According to Autoblog, Kelley Blue Book estimates Chrysler and Volkswagen poured money into incentives last year, with Chrysler reportedly forking out incentives equivalent to 14.5 per cent of new-car price, and VW not far behind, on 13.7 per cent.

This is said to be approaching the levels of the recession that followed 2008’s global financial crisis, and prompted by growing inventories due to a drop in exports to some markets.

In contrast to the blooming US, some South American markets have suffered a reversal.

Even in Australia, where the overall market grew 3.8 per cent last year, sales of American-sourced vehicles flat-lined, with sales of Jeeps falling almost 20 per cent on 2014’s record 30,408 sales.

Global economic stability from a slowing of the Chinese economy and other factors could also rattle US consumer confidence.

Despite this, Ford Motor Company is predicting another big year for its vehicles, saying it expects its automotive revenue to be equal to or higher than 2015 levels.

Although final figures are yet to be released, Ford is expecting to report a 2015 pre-tax profit of more than $US10 billion ($A14.2b).

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