Auto Sales’ Incentives Could Hit Profits

United States auto sales finished even with last year in February despite higher incentives.

Even with hefty incentives to lure customers into dealerships late in the month, United States auto sales finished even with the year-earlier period for February as cold and snowy weather kept buyers at home where it was warm. February’s sale came within 300 vehicles from last year’s sales of 1,193,872 light cars and trucks. Chrysler Group, General Motors Co and Ford Motor Co all claim to have had better than expected sales for the month but high incentives have raised some questions about profitability in the near term.

For the month, the annualized sales rate finished just short of the 15.4 million expected by analysts at 15.34 million vehicles sold. This was the third consecutive month that sales did not meet expectations. Some industry analysts say the January and February frosty sales will thaw in March with the rising temperatures and customers will return to the showrooms in larger numbers. Nonetheless, several analysts also said high customer incentives offered in late February will carry over into March and the discounts to encourage buyers to visit showrooms will cut into profits.

There is an 80 days of supply of vehicles on dealer lots, says Larry Dominique, executive vice president of industry research firm TrueCar, a 60 to 65 day supply is more desirable. “We have on average two-and-a-half months of supply on dealer lots,” Dominique said. Pressure to raise incentive levels further will increase since automakers have not cut production and this will lead to more oversupply, he added. The monthly sales figures are an indicator of future consumer demand. However, January and February sales are generally the lowest of the year.


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