November U.S. auto sales came in solid. A 1.4 percent gain over last November may appear modest. But the 1,399,640 light vehicles sold is a record for the month, topping what had been the best ever November a year ago.
November is just the second month in 2017 to post a gain year over year. And it's the first to do so without much of the benefit of demand from consumers replacing vehicles damaged by hurricanes. Ford Motor sales boss Mark LaNeve, for one, said there's no evidence of a lift from shoppers replacing vehicles lost to Harvey or Irma in the automaker's November numbers.
There are encouraging data points. The general U.S. economy is growing, financial markets are booming, interest rates are up a bit but still near historic lows, credit remains readily available, fuel prices remain low and consumer confidence is high.
Specific to the auto industry, average transaction prices are still rising, even with higher incentives. Edmunds put the industry average new-vehicle transaction price at $35,852, or 2.3 percent higher than last November. With November's growth, the industry's volume falloff from a record 2016 is just 1.4 percent through 11 months. And automakers appear to be working down this summer's swollen inventories, largely by cutting production to meet reducing demand.
The upshot: The U.S. auto market remains fundamentally healthy. And automakers are generally demonstrating rational adjustments to a changing market.
But let's not kid ourselves. Not everything is rosy. As buyers cope with higher price tags, auto loan terms keep getting longer — meaning more consumers will be out of the market longer. Incentives remain above 10 percent of average transaction prices. Those rising ATPs aren't all gravy. Much of those net pricing gains are illusionary -- simply consumers substituting higher priced crossovers, pickups and SUVs for lower-priced sedans. And automakers are harvesting future sales early by offering aggressive pull-ahead lease deals.
Beyond that, automakers are still selling off lots of leftover 2017 models. Edmunds estimates 57 percent of November sales were 2017 models instead of 2018 models. A year ago, 49 percent of sales were holdovers, and five years ago, it was just 41 percent.
This sets the table for what should be an illuminating December. Last year, automakers went all in on year-end incentives and deals to create a monster sales month, the highest volume December on record.
It solidified a record in 2016 by a narrow margin over the previous record in 2015, but at the cost of pulling sales forward out of the first quarter of 2017.
This December, automakers face the same choice. They can generate pretty much whatever sales numbers they wish by juicing incentives. The downside is that some of that December volume comes out of 2018.
But big December deals are now inevitable. Automakers have trained U.S. consumers to expect them, so lots of buyers are primed to buy. They may not need huge nudges to bite, but if specials aren't offered, they'll simply wait.
And competition ensures incentives. Each automaker faces the same dilemma. Yes, we're mostly pulling forward our own future sales. If we desist, our rivals' incentives will lure away some of our customers. But if we offer an interesting deal, maybe we can conquest some rivals' customers.
It's a formula that can make manufacturers queasy. But it's well established.
And there are all those 2017 models to move before they need even bigger spiffs in the new year.