New Car Incentives Are Down 42% Year-over-Year

October 21, 2021
Written by: Ray Shefska
Categories: New Cars

A few years ago, a typical car deal would include thousands of dollars of “incentives” to help a dealership seal the deal with a customer. Nowadays, new car incentives are few and far between. As the ongoing chip shortage (and new magnesium shortage) have hampered automakers, we’ve seen a drastic decline in new car incentives.

Incentives traditionally take the form of either cash rebates or special financing programs. Cash rebates are going by the wayside as vehicle supply cannot keep up with consumer demand. Because of this imbalance automakers do not need to subsidize the purchase of their vehicles. Many consumers are perfectly content buying at MSRP (or above).

Special finance programs still exist, however most industry analysts expect them to fad away as well as interest rates inevitably increase due to inflationary pressures.

TrueCar tracks incentives for most major OEMs. We’ve compiled that data here for you.

Q3 New Car Incentives

The table below makes it very clear; new car incentives are being cut left and right.

ManufacturerQ3 2021Q3 2020Q2 2021YoY % ChangeQoQ % Change
Volkswagen Group$2,939$4,421$3,730-33.5%-21.2%

GM, who lost their US sales crown to Toyota is cutting back most heavily when it comes to incentives. This makes sense, because GM inventory levels are down 80%+ in most states right now. With no new vehicles to sell, it makes sense why GM would cut back on incentives.

inventory levels broken down by state

Hyundai and Nissan have also cut their incentives aggressively quarter-over-quarter. This indicates that they may be struggling more than their peers when it comes to production of vehicles.

As a whole, the industry has experienced a 38% reduction in new car incentives year-over-year for the third quarter.

Monthly Changes in New Car Incentives

Digging into the data on a month-to-month level is fascinating. We can actually see that the month-over-month changes are more drastic, indicating that the reduction in new car incentives is more aggressive today than it was at the beginning of Q3.

ManufacturerSep 2021 ForecastSep 2020 ActualAug 2021 ActualYOYMOM
Volkswagen Group$2,690$4,311$2,763-37.6%-2.6%
cars with the most & least inventory by brand

BMW and GM have decreased their new car incentives the most, followed by Toyota. Ford and Subaru have both increased their new car incentives. This is surprising, because Subaru has a very limited supply of inventory, and Ford isn’t fairing too much better.

The industry as a whole has slashed new car incentives 42% year-over-year for the month of September. There is no indication that this will get “better” before the end of the year, and many automakers are excited to get rid of incentives because it allows them to save money.

We can also see a decline in incentives as a percentage of the average transaction price (ATP) of a new vehicle.

ManufacturerSep 2021 ForecastSep 2020 ActualAug 2021 ActualYOYMOM
Volkswagen Group6.8%10.7%6.8%-37.0%-0.3%

To understand this table, simply look at BMW. In September of 2020 incentives accounted for 8.5% of the average transaction price of a BMW. That means that if you were buying a $100,000 BMW you would expect $8,500 in incentives. Today the expectation should be $5,300 in incentives. As new car incentives decline, and average transaction prices increase, incentives as a percent of average transaction price is also falling.

Can You Still Get a Deal on a New Car?

“Deal” is relative in this market. The short answer is “yes,” the long answer is, “it depends.” We have seen many YAA members secure new cars at MSRP with no additional dealer markup. In this market, that’s a GOOD deal. A lot of your dealmaking ability will have to do with the amount of inventory the dealership has available for sale. Some automakers are also still offering incentives on factory orders, so if you are okay with waiting for your new car, placing an order might make sense for you.

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