The auto boom may have finally run out of gas

July auto sales cool

After six straight years of rising sales, there is a new reality settling in at dealerships around the country: Sales may have finally peaked.

"I think we're going to settle into a period with a more relaxed buyer attitude," said Karl Brauer, senior director of automotive industry insights at Kelley Blue Book. "It's going to be harder for the auto companies to pull buyers in without using more creative incentives."

Indeed, July's auto sales figures show automakers did spend more to win over buyers. The amount of money spent on incentives as a percentage the average price paid for a new vehicle hit 9.9 percent last month, according to RBC Capital Markets. That's the highest level since November 2010, the firm said.

And TrueCar said the average industry incentive in July was $3,225 — a year-over-year increase of $159 per vehicle sold. These deals helped the auto sales pace come in at 17.88 million in July, according to Autodata, within the range of analysts' forecasts.

Rising incentives have long been a concern for investors, who are worried automakers will return to the days of massive discounting. That was one reason why these firms struggled to consistently post profits in the late '90s and early 2000s.

However, since the industry bottomed out during the latest recession — with annual sales dropping to 10.4 million vehicles in 2009 — automakers have been able to keep incentives in check. That has been due, in part, to pent-up demand and an improving economy, which convinced many Americans they should buy a new car, truck or SUV.

Car out of gas
David Grill | Getty Images

Now, after annual sales reached what could be a peak of roughly 17.5 million vehicles last year, automakers and dealers are turning to rebates to win over buyers.

"We can't count on monthly sales growth of 6 [percent] to 7 percent," said Mark LaNeve, Ford's vice president of U.S. marketing, sales and service during a conference call with analysts. The executive added that his company will be "disciplined yet competitive" as it relates to incentives.

Ford's discipline on rebates is of particular interest on Wall Street, after the automaker last week cited higher incentive spending as one contributor to its weaker-than-expected profit in the second quarter.

In addition to higher rebates, there's also concern the pent-up demand that drove millions to buy a new vehicle has faded away. Meanwhile, some dealers are noticing fewer potential customers coming into dealerships.

That hasn't been a problem at the showrooms that make up The Suburban Collection, a group of dealerships in southeast Michigan.

"Last week we had our best floor traffic ever," said David Fischer, CEO of The Suburban Collection. "In fact, we ended July with the best week in our history."

Questions? Comments?

Related Tags