While American auto sales look promising as the end of the year looms, industry analysts are concerned that overly generous incentives could take a bite out of profits.
The yearly sales rates for United States vehicles should finish at 15.6 million cars, according to economists surveyed by Reuters. Some industry experts think the number could even exceed 16 million.
"Our marketing is there, our inventories are good, our product is really good; we just need a good finish," Tim Coad, owner of Coad Family Dealerships in Cape Girardeau, Missouri, told Reuters in a phone interview.
The 16 million rate would be the strongest pace of 2013, which has been a good year for the auto industry. Monthly auto sales are analyzed as an early indicator of the strength of the U.S. economy. Because the average vehicle is more than 11 years old, consumers have had to find replacements, boosting the industry.
November sales are slated to be reported on Dec. 3. Analysts predict a rise in sales possibly ranging from 3.6 percent to 6.8 percent as vehicle demand rises after the 16-day government shutdown made for a slump in October.
Including more than $30 billion in November business, the yearly sales rate could hit 16.1 million cars, a research firm said. Spending on new cars could top $370 billion this year, a figure that would be the highest on record and above pre-recession levels, according to John Humphrey, senior vice president of J.D. Power's global auto practice.
Despite the positivity going into the end of the year, some industry analysts are concerned that rising incentives could be chipping away at companies' profit margins.
Morgan Stanley analyst Adam Jonas said General Motors executives at the Los Angeles Auto Show last week said "there are some warning signs brewing in industry sales momentum and discipline" as incentives rise.
Industry incentives increased 4 percent in November year-over-year; Ford, Nissan, General Motors and Toyota have all had "generous or rising" offers.
"[It] does not look as robust as everyone is saying," John Mendel, Honda sales chief, said of the potential rise in sales. His prediction is that Honda's sales will jump 3 percent.
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