U.S. auto sales to end year strong, but fears about incentives mount

Tue Nov 26, 2013 3:45pm EST
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By Ben Klayman

DETROIT (Reuters) - U.S. auto sales are expected to finish the year at a fast pace, with demand possibly at its highest in November, but Wall Street remains worried the industry could return to overly generous incentives that would eat into profits.

Economists surveyed by Thomson Reuters see the annual sales rate for U.S. new-vehicle sales in November finishing at 15.6 million vehicles. And some analysts said the rate could top 16 million, which would mark the strongest pace of the year.

"Our marketing is there, our inventories are good, our product is really good; we just need a good finish," Tim Coad, owner of Coad Family Dealerships in Cape Girardeau, Missouri, said in a telephone interview.

Coad said sales at his Chevrolet, Ford and Toyota stores are on pace to match last year's strong results.

Monthly sales are regarded as an early indicator of the U.S. economy's health. The industry has held up better than the broader economy because of easier access to credit and consumers' need to replace aging vehicles, which now average more than 11 years.

But some analysts are worried about rising incentives biting into companies' profit margins. Morgan Stanley analyst Adam Jonas said General Motors Co executives at the LA Auto Show last week agreed "there are some warning signs brewing in industry sales momentum and discipline" with incentives heating up.

RBC Capital Markets sees industry incentives up 4 percent in November over last year, and analysts and industry officials cited generous or rising offers from Ford Motor Co (F.N: Quote), Nissan Motor Co (7201.T: Quote), GM (GM.N: Quote) and Toyota Motor Corp (7203.T: Quote). Ford's incentives on its F-150 pickups were up 12 percent, according to Barclays and Buckingham Research Group.

Meanwhile, GM is touting its Black Friday sales deals where consumers can buy certain Chevy, Buick and GMC models at prices paid by employees of suppliers. Coad said the deals are not as crazy as prior decades when he saw offers of up to $10,000 off.   Continued...

Chevrolet Silverado pick up trucks are seen in Gaithersburg, Maryland May 1, 2013. REUTERS/Gary Cameron