A drop-off in auto sales usually sends incentives soaring and profits plummeting. Not in 2020, amid the biggest one-year decline in U.S. light-vehicle sales since the Great Recession.

Instead, tight inventory levels resulted in smaller discounts and a stronger bottom line for many automakers and dealers. In December alone, the industry made an extra $840 million from lower incentive spending, according to J.D. Power, yet the fourth quarter saw the smallest sales decline of the year — down 2.4 percent from the last three months of 2019.

Consumer automotive spending rose 10 percent in the fourth quarter, even as incentives declined and average transaction prices climbed, J.D. Power said.

“Price increases [with] a very strong retail environment produced a lot of dollars in the market,” Tyson Jominy, vice president of data and analytics at J.D. Power, told Automotive News. “A 10 percent gain in what consumers are spending is just massive.”

U.S. light-vehicle sales fell 14 percent to 14.6 million, according to the Automotive News Data Center. That’s the lowest volume since 2012. Just four brands — Bentley, Volvo, Alfa Romeo and Mazda — of the 30 that report U.S. results managed increases.

Even with sales down 2.5 million from 2019, the industry largely avoided the disaster that seemed to be materializing in the spring, when many dealerships temporarily closed and automakers halted production for eight weeks.

In December, the average transaction price surged 8 percent to a record $38,000, J.D. Power said. The inventory strain pushed incentives down to 9 percent of sticker price, or about $4,000, a 19 percent drop from April, when automakers rolled out no-interest, seven-year loans to stoke demand.

Automakers entered 2021 enjoying lower incentives, rising transaction prices and growing inventory. “The industry profitability is going to be off the charts,” Jominy
Source…