Year-end sales to test automaker restraint

DETROIT — Several sales titles and records are on the line for the U.S. automotive industry heading into the final two months of the year.

Among the most prominent are the Japanese automakers battling for the titles of America's best-selling cars and crossovers, while the overall industry could record a third straight 17 million-unit year for the first time ever.

The races, combined with slightly declining sales, as reflected in October's 1.1 percent drop, are expected to test the industry's discipline regarding incentive spending, fleet mix, and balancing profits vs. market share heading into 2018.

"We have plateaued; we'll see some contraction," said Stephanie Brinley, senior automotive analyst for IHS Markit. "That makes for a difficult environment because automakers generally want to improve sales … and if you're in a down market, it makes it harder, and then you start fighting for market share."

Those conditions are traditionally when things get "dangerous," she added, "because market share can be bought."

The overall industry this year has shown some restraint on incentives, but spending has steadily increased amid leveling average transaction prices. AutoData Corp. estimates incentive spending for the year is up 11 percent through October to an average of $3,624 per vehicle, including a 5.4 percent increase last month to $100 above the yearly average.

ALG estimates the average transaction price for a new light vehicle was $33,226 in October, up 0.9 percent from a year earlier. Incentive spending as a percentage of ATP also increased to 11.5 percent in October, up 0.8 percentage point from a year ago.

In addition to rising incentives and plateauing average transaction prices, Edmunds.com reports automakers are struggling to move lagging 2017 inventory off dealer lots. Edmunds reports 72 percent of new vehicles sold last month were 2017 models, up from 60 percent the previous year.

"Clearing out old inventory is expensive, especially when automakers are forced to deeply discount passenger cars, which already have thin profit margins," said Jessica Caldwell, executive director of industry analysis for Edmunds. "With two months left in the year and this much inventory remaining, we expect to see some very creative year-end sales events to entice car shoppers."

Among the companies to watch are Japan's three largest automakers, which each increased October sales amid year-end battles for bragging rights as America's best-selling car, non-pickup vehicle and crossover.

Toyota, which has increased average incentive spend an estimated 14 percent this year, is leading the last two sales races. However, its coveted title for the Camry as America's best-selling car for the past 15 years is in jeopardy.

Through October, the compact Honda Civic led the Camry by 5,940 units. The two cars have gone back-and-forth for the lead each month, but the Civic took the largest lead of the year in October by outselling the Camry by more than 4,000 units.

"It's amazing how well Honda does with cars," said Autotrader analyst Michelle Krebs. "The Civic had a phenomenal month."

Honda's car sales, led by the Civic and redesigned Accord, rose 5.9 percent while light-truck demand slid 3.6 percent. The company's estimated average incentive spend of less than $2,000 remains among the lowest in the industry; however, it has increased 17 percent this year.

While Toyota could lose its car crown, it could retain its title as best-selling non-pickup in America. The RAV4 through October is the top-selling domestic vehicle, excluding pickups. It's roughly 19,100 units ahead of the Nissan Rogue.

Ford's F-Series, with sales of nearly 734,600 units through October, is expected to retain its titles as America's best-selling truck for 40 consecutive years and best-selling vehicle for 35 years. The closest competitors are pickups from Ford's crosstown rivals: Chevrolet Silverado at 471,747 and Ram at 419,102.

Despite the October sales decline, the seasonally adjusted, annualized pace of sales topped 18 million for a second consecutive month. It's only the ninth month the SAAR has topped 18 million units.

Analyst Alec Gutierrez of Kelley Blue Book expects sales to remain steady through the final months of the year, while the SAAR should decrease to the low to mid-17 millions as hurricane-related replacement demand tapers off.

The U.S. new-vehicle market, after seven straight annual gains capped by a record 17.5 million in 2016, is now off 1.7 percent through October. Many analysts expect year-end sales to be around 17 million to 17.1 million units.

Light-truck demand, up 3.4 percent in October, continues to propel the market, while car demand remains weak, off 8.8 percent last month. For the year, light trucks are up 3.6 percent, while cars are down 9.2 percent.

"At the very beginning of the year, we called this the 'post-peak era.' We knew we wouldn't set another record and you can see the signs of that," Krebs said. "But at the same time, it shouldn't be lost on us that this is a pretty strong market."

If sales top 17 million, it would only be the fifth time that has ever happened. They're about 2.8 million vehicles away through October, with sales down 1.7 percent from the same time period a year ago to 14.2 million.