How do manufacturer earnings affect incentives?

Q4 earnings were announced this week and the entire auto industry had a nightmare quarter. That immediately made me ask if this affected how manufacturers treated their lease incentives.

Conventional wisdom would say that they go one of two ways:

  1. Increase incentives to move more units.
  2. Decrease incentives to try to tighten the belt (I’m not sure how incentives work on the manufacturer end tbh).

Does anyone have any idea if there is a correlation?

Well BMW raised the money factor January and then again this month. But they did that last year too.

When cars don’t sell, earnings go down and incentives go up. And vice-versa’

Earnings go down also when unions go on strike.

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It depends on the brand. Some adjust production down. It depends largely on labor and supplier contracts.

Q4 told us what many suspected, we’re past the peak (again). We’re unlikely to sell as many cars in 2020 as we did in 2018 (as many as 2019 still TBD). Either your product mix starts eating at competitor’s marketshare or you build fewer cars.

January is a time for the business to reflect and see what adjustments they can make to their supply chains.

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Agreed. Nobody in the automotive industry should be very surprised at the Q4 numbers and most manufacturers have released their long-term strategies as an attempt to allay their shareholders. They aren’t going to explicitly spell out “more incentives” but it should give you a good idea as to what they are targeting. Depending on how drastic they need to be will dictate what they do.

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JLR (already stingy with incentives) is up first

And interesting cross section of auto industry jobs, although to me this just reads as primary (working for auto companies) not all the downstream jobs.

Some good history reminders in their too, like only GM and Chrysler declared bankruptcy (people constantly, mistakenly lump Ford in there)