Incentives keep market running at record pace

After three consecutive declines, automakers managed in November to make the largest year-over-year sales gain since February, posting a 3.6 percent gain.

But it took a big jump in incentives to make that happen.

Those heavy incentives -- now amounting to more than 12 percent of the industry's average transaction price -- might be enough for 2016 to topple last year's record by a razor-thin margin. Going into December, U.S. sales were just 6,418 vehicles ahead of last year's pace, an increase of 0.04 percent.

"Everyone's trying to protect their volume and their market share," said Jeff Schuster, senior vice president of forecasting for LMC Automotive. "Incentives are being used to soften the blow of the slowdown, to ease the flattening of the market. Because we're kind of hovering in that record territory, it's easier to pull that lever than if we had a sharp falloff in demand."

November and December have become big months for promotions in recent years. But even by that standard, automakers were unusually aggressive last month, spending $3,741 per vehicle, 21 percent more than in November 2015, according to Autodata.

And unlike many recent months, that money wasn't aimed at clearing out inventories of slow-selling cars; it was largely used to grab more share in SUV, pickup and crossover segments that were already red-hot.

Incentives surged 30 percent on light trucks, nearly triple the 11 percent increase for cars, Autodata said. GMC spent 68 percent more on the Sierra, Ford spent 88 percent more on the Explorer and Toyota nearly tripled incentives on the Highlander. While Sierra and Explorer sales rose just 2.1 percent, Highlander volume surged 67 percent from a year ago to an all-time high.

November incentive spending was nearly $500 higher than the industry's average from January through October.

"There is a point of diminishing returns when whatever you give at the front end in incentives comes off residual values at the back end," AutoNation CEO Mike Jackson told Automotive News last week. "We're right at that tipping point."

Bigger discounts are adding to the positive effects of a strong stock market and declining unemployment -- the national jobless rate fell to a nine-year low last week -- to keep dealerships busy as 2016 comes to a close. Dealers and automakers said the month started slowly as consumers fretted about the presidential election, but it ended up breaking the November record set in 2001.

Light-truck sales rose 8.6 percent, growing to 63 percent of the market from 60 percent a year ago. Car sales fell 3.9 percent, which was the smallest decline since February. 

Overall sales volume rose 3.6 percent from a year ago. November marked the fourth time in five months in which the seasonally adjusted, annualized selling rate topped 17.7 million. 

"When you look at the strength of November ... particularly over the Thanksgiving holiday, consumer confidence is just fine," said Bob Carter, senior vice president for automotive operations at Toyota Motor Sales U.S.A. "We're very optimistic of what the economy is going to provide the auto industry over the next 24 to 36 months." 

To break the 2015 full-year sales record of 17,486,446 vehicles, the industry's December results will have to essentially match its year-ago volume of 1,642,224, which was a record for the month, according to the Automotive News Data Center. (The 2015 total is higher than the 17.47 million originally reported because Fiat Chrysler Automobiles has since restated its sales results dating to 2011.) 

This December has one fewer selling day than the month did in 2015. There are five weekends in the month, the same as last year, though some dealerships' websites indicate plans to close the entire weekend of Christmas, which falls on a Sunday this year. 

If consumers decide the December discounts are too good to pass up, that could pull some sales forward from January, further reducing the chances of another annual record in 2017. 

Analysts generally expect auto sales in 2017 to be flat or slightly below this year.