The semiconductor chip shortage has not only led to new vehicle production woes and record low inventory but also higher prices as demand remains strong. Many dealers are selling vehicles at or above MSRP, with incentives a rarity at the moment. Thus, it isn’t really a surprise that Ford incentive spending is down significantly amid an industry-wide plunge that saw it reach a new 2021 low in June, according to new data from Cox Automotive.
Ford sales were down 27 percent in June as a direct result of the chip shortage, but at the same time, its net income of $561 million and $1.1 billion EBIT beat Wall Street estimates. Additionally, focusing on producing its more profitable vehicles paid off for the automaker as its revenue per unit sold rose 14 percent year over year. A sharp cut in Ford incentive spending helped fuel that surge as well.
On average, Ford spent a still significant $2,621 on incentives for every vehicle it sold in Q2, which totals roughly $1.2 billion. That’s a large decrease from 2019 when it spent $4,333 per vehicle sold, however, which totaled around $2 billion in the second quarter. That cut added around $800 million to the automaker’s bottom line and put it more in line with Honda and Toyota’s typical incentive spending.
Thus, it’s no wonder that Ford is now focusing on shifting to a more build-to-order paradigm, as Ford Authority reported last week. Ford CEO Jim Farley recently admitted that the automaker has been “wasting money on incentives,” a fact highlighted by the chip shortage. Now, Ford plans on moving to an order-based system and keeping its new vehicle inventory at around 50 to 60 days’ supply to maximize profitability.
All of this means that new vehicle shoppers can expect to find fewer and fewer incentives in the coming months and years, as well as fewer vehicles on dealer lots to choose from.