JAMES B. TREECE

Will incentive discipline hold? Watch the mid-sized car segment

Jim Treece is news editor for Automotive News.Jim Treece is news editor for Automotive News.
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DETROIT -- Keep your eyes on the mid-sized car segment.

That was one of the messages from Kelley Blue Book's briefing for reporters today ahead of the Detroit auto show.

Kelley Blue Book predicts new light-vehicle sales in 2014 will rise 5 percent to 16.3 million -- if the industry stays disciplined. That means keeping production in line with demand. Not overproducing. Not trying to inflate sales artificially with incentives.

If incentives get out of hand, sales could jump to 16.8 million, says Kelley Blue Book Senior Analyst Eric Gutierrez. But the gains would come at the expense of industry profits.

Where might discipline break down first?

Gutierrez's presentation compared where the industry stands today with where it was at the end of 2007, the last "normal" year before the recession. Compared with then, vehicle inventories are higher. And they're much higher for nameplates in the high-volume mid-sized car segment.

"I expect to see incentives in the mid-sized car segment," Gutierrez said.

The real question is how large those incentives become. The crunch could come "later this year," he added, if interest rates start to rise and demand starts to soften.

Or if someone decides to buy share, which could come at any time.

You can reach James B. Treece at jtreece@crain.com.

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