Honda's Mendel warns against rising incentives, fleet sales as market peaks


Honda's Mendel warns against rising incentives, fleet sales as market peaks
  1. Honda's Mendel warns against rising incentives, fleet sales as market peaks
    autonews.com
    U.S. auto sales might have hit another record last year, but the soaring volume is a double-edged sword for squeezed retailers trying to move the…
    Auto

DETROIT -- U.S. auto sales might have hit another record last year, but the soaring volume is a double-edged sword for squeezed retailers trying to move the metal.

John Mendel, executive vice president of American Honda Co., warned that too many dealers are “suffering sweaty palms” as manufacturers return to bad old practices of overzealous fleet sales and soaring incentives to keep sales in an upward trajectory.

U.S. light-vehicle sales hit a new high of 17.5 million in 2016, up just 0.3 percent from 2015. It marked the seventh year of annual sales increases, a streak of success not seen in a century.

But margins are being pressured across the industry as some automakers relax discipline, Mendel said Wednesday in an address to the 2017 Automotive News World Congress.

“How is it that at such a high point, so many in the industry, including dealers, are struggling for profits, if not survival?” Mendel asked. “These trends are a problem for the whole industry.”

Mendel decried a surge in fleet sales and cash on the hood as well as an increase in long-term and subprime loans. The practices stoke sales, but only temporarily and at a price, he said.

“Especially if overall demand softens to, say, 15 or 16 million -- still good business, by the way -- that’s when the tail of this whip really comes around to smack the holder,” Mendel said.

Without the juicing of sales, Mendel said last year’s volume would probably have ended around 16 million vehicles. But the long-term loans and incentives are necessary for a lot of buyers.

“As we’re creating more and more content, better vehicles, safer, more connected, we’re spinning people out further and further away from being able to afford them,” he said.

American Honda, Mendel maintained, offers an alternative model for sustainable sales.

The Honda and Acura brands combined set a second-straight annual U.S. sales record in 2016, as sales advanced 3.2 percent to 1.64 million vehicles. And virtually all was retail, Mendel said.

The key is discipline and good product, he said.

Mendel praised General Motors as being another manufacturer that posted an increase in retail sales last year and resisted the temptation to pad volume with fleet.

“It’s really encouraging to see GM focusing on sustainable, long-term health and success,” he said. “I applaud their effort. They are protecting their customers, their dealers and their brand.”

Incentive spending at Honda was less than half the industry average last year and down more than 12 percent year-on-year,…

Tags: #Honda
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