Multiple automakers are signaling the return of incentives as they consider options to address rampant unaffordability in the current car market.
In comments made to WardsAuto, Ford’s chief financial officer John Lawler expressed that the company expects to see pricing pressures come down on Ford Blue (the company’s gas-powered and hybrid division) products in the latter half of 2023 “as we see supply and demand normalize.” Similar sentiments were offered by CFO Paul Jacobson of General Motors when he forecasted average prices falling back to 2022 levels before the end of the year.
Most car brands have been reticent to address affordability since the arrival of the COVID pandemic. As recently as last week, many executives, such as Stellantis CEO Carlos Tavares, held the position that lowering MSRPs would negatively impact profitability regardless of increases in sales volume and that higher margins took priority over sales volume. The only company to offer substantial discounts in 2023 has been Tesla, which has so far lowered prices on eight different occasions.
Yet until now, the conversation on pricing was mainly targeting EVs due to concerns over whether the Elon Musk-led brand was attempting to wage a “price war” with legacy automakers. However, the remarks from Jacobson and Lawler indicate that attitudes toward affordability are starting to change on a broader scale. Likely, this shift results from demand bottlenecks only now taking effect. Since the start of the year, interest rates and inflation have increased while loan approvals have decreased, leading many consumers to put off their car purchases. With inventory finally recovering from its pandemic slump, manufacturers are facing the possibility of higher supply than demand, hence the sudden discussion on prices.
But whether companies plan to address affordability issues with incentives or lower MSRPs remains to be seen. Few conversations have produced a specific plan, and it seems that automaker executives are still determining the most profitable course of action. However, even if manufacturers make no effort to lower prices, consumers can likely expect to see discounts offered through dealerships, many of whom are even more sensitive to supply and demand risks than their OEM partners.