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A healthy market with hurdles

The U.S. light-vehicle market, down 1.7 percent this year through October after seven consecutive annual gains, remains healthy though it's early in the down cycle, when adjustments are easiest to undertake for automakers. Photo credit: REUTERS

October was a reality check, a return to the yearlong theme of a post-peak U.S. auto market after September's spurt driven by storm-replacement sales.

So far, we're seeing a fairly orderly retreat from 2016's record volume, with nine of 10 months posting narrow but consistent declines from the year before. Most automakers are following the familiar post-peak playbook: cut production as needed, tactically target incentives to clear stocks of slow-selling models, balance inventories and avoid excesses.

And considering the remarkable speed at which consumers are abandoning cars for taller body styles, the sales retreat has gone well and automaker discipline is sturdy.

But here are two cautionary points:

1. It's still early, when adjustments are easiest to make and relatively painless.

2. There are finite limits on what the industry can do. And manufacturers are starting to use them up.

So, eight years after sales bottomed out in early 2009 and 10 months after that climactic December sprint to lift 2016 to a record, here's what auto marketers face.

Sales remain strong, down 1.7 percent year to date and on pace to make 2017 one of just five years with volume of more than 17 million.

There are plenty of good signs. The general economy is growing. Consumer confidence is solid and buyers continue showing they are willing to pay extra to get the rides they want. The temporary lift from hurricane replacement sales probably will last into November.

But worrisome signs are popping up. Interest rates edged higher and the average new-vehicle loan term grew to 69.19 months in October, almost four months higher than five years earlier, Edmunds notes. Average transaction prices rose, but only fractionally as incentives climbed still higher, both ALG and LMC Automotive said. Factory incentives not only increased last month, but included a number of lease pull-ahead deals.

Paying people a bonus to end a lease a few months early may generate more transactions and perhaps protect a brand from having others poach a customer, but to me it has always been the prime example of pulling future sales into the present. Pull-ahead deals prop up today's market at the expense of the next quarter. And come next quarter, what fresh stunt must marketers pull to compensate?

Automakers are straining to clear the decks for 2018. In October, 72 percent of sales were 2017 models, Edmunds said. At this stage last year, 60 percent of monthly sales were outgoing models.

Bottom line, it's still a healthy auto market. But as we head into 2018, each new month will be a bit more challenging.

You may email Jesse Snyder at

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