Analysis of new car incentives – May 2020

Target Price this month Analysis of new car incentives

• Ten of our 12 featured vehicle segments are reporting a month-on- month drop in the average cash Target Price discount of up to 13.9%, in relative terms. Only convertibles and MPVs have bucked this trend. This means customers can currently expect to haggle a typical 8.3% saving (or £3016 per car) across our Target Price inventory.

• Average cash Target Price discounts had been trending higher over the past two quarters across all segments, except for city cars, small cars and luxury SUVs, which have seen an average 17.8% relative terms reduction. The industry had hoped that this market state would facilitate a buoyant new registration period while allowing for a dealer profitability uplift on sales from the more desirable vehicle segments.

• Depending on the length of lockdown during the Covid-19 crisis, these market objectives might still be met, but at a later date. Our recent research has found that many salespeople operating within lockdown are happy to talk in principle about future factory order deals at current Target Prices, but are hesitant to confirm anything now, or for in-stock vehicles, unless they are at significantly lower discounts, or at a discount level set by a manufacturer on their behalf. But this shouldn’t completely bind customers’ future discount expectations, because manufacturers and dealers are likely to blink first in this stand-off.

In focus: Small cars

• The average cash Target Price discount among small cars has been trending lower in recent months, with manufacturers restricting or influencing dealers’ margin discounting and providing alternative sales incentives through PCP finance-based APRs and finance deposit contributions (FDCs). The trading restrictions and eventual closure of showrooms caused by the Covid-19 crisis appear to have accelerated this trend, with the typically achievable cash Target Price down 13.9%, in relative terms, month on month at 6.6%, or £1275 per car.

• Customers can use a manufacturer-backed, average 3.9% APR PCP deal to buy their next small car, and while this average APR is down from 4.1% last month, the typically available FDC linked to this PCP offer has also been reduced from £955 to £843 per car.

• Despite this move, this FDC support accounts for almost 40% of the average total cash and finance Target Price saving of £2118 per car. This is the third highest of all vehicle segments and highlights the increasing level of control that manufacturers have on how and when to incentivise sales.

• However, some variants within the segment still need an obvious cash discount push to get noticed by buyers. These include the Seat Ibiza at an average saving of 13.9% (£2803 per car), Citroën C3 at 15.3% (£2705) and Suzuki Swift at 18.2% (£2704).

• Skoda dealers are offering the best average finance Target Price terms, at 0% APR on a PCP deal with an FDC of £1250 per car on Fabia models.