DETROIT U.S. auto sales are expected to finish the year at a fast pace, with demand possibly at its highest in November, but Wall Street remains worried the industry could return to overly generous incentives that would eat into profits.
Economists surveyed by Thomson Reuters see the annual sales rate for U.S. new-vehicle sales in November finishing at 15.6 million vehicles. And some analysts said the rate could top 16 million, which would mark the strongest pace of the year.
"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, said in a telephone interview.
Coad said sales at his Chevrolet, Ford and Toyota stores are on pace to match last year's strong results.
Monthly sales are regarded as an early indicator of the U.S. economy's health. The industry has held up better than the broader economy because of easier access to credit and consumers' need to replace aging vehicles, which now average more than 11 years.
But some analysts are worried about rising incentives biting into companies' profit margins. Morgan Stanley analyst Adam Jonas said General Motors Co executives at the LA Auto Show last week agreed "there are some warning signs brewing in industry sales momentum and discipline" with incentives heating up.
RBC Capital Markets sees industry incentives up 4 percent in November over last year, and analysts and industry officials cited generous or rising offers from Ford Motor Co (F.N), Nissan Motor Co (7201.T), GM (GM.N) and Toyota Motor Corp (7203.T). Ford's incentives on its F-150 pickups were up 12 percent, according to Barclays and Buckingham Research Group.
Meanwhile, GM is touting its Black Friday sales deals where consumers can buy certain Chevy, Buick and GMC models at prices paid by employees of suppliers. Coad said the deals are not as crazy as prior decades when he saw offers of up to $10,000 off.
GM spokesman Jim Cain said the company headed into November with incentives that were below the industry average and that gave it "room to maneuver."
The U.S. auto industry is scheduled to report November sales on December 3, and analysts who closely follow the industry see sales rising in a range of 3.6 percent to 6.8 percent as demand returns to "normal" after the 16-day government shutdown hurt October results.
John Humphrey, senior vice president of J.D. Power's global auto practice, said consumer spending on new cars is likely to top $370 billion this year, which would be the highest on record and above pre-recession levels. That includes more than $30 billion in November, when the research firm expects the annual sales pace to hit 16.1 million vehicles.
Not everyone is as optimistic about November. Honda Motor Co's (7267.T) U.S. sales chief John Mendel told reporters last Friday that while sales will rise thanks to the month's five weekends including Thanksgiving, it "does not look as robust as everyone is saying." He expects Honda's sales to increase 3 percent.
The three U.S. automakers are all expected to show gains in the month, marked by continued strong end-of-the-year demand for full-size pickup trucks like GM's Chevy Silverado, Ford's F-150 and Chrysler Group's FIA.MI Ram.
Sales at GM are expected to rise 8 percent to 15 percent, while those at Chrysler are seen increasing 7 percent to 10 percent helped by the first full month of availability of its new Jeep Cherokee mid-sized sport utility vehicle. Ford's sales are predicted to rise 3 percent to 6.7 percent.
Kelley Blue Book expects demand in the month for compact crossover utility vehicles and large pickups to rise almost 24 percent and 8 percent, respectively.
Most analysts and industry executive expect U.S. overall U.S. sales this year to finish at 15.5 million to 15.6 million vehicles, up from 14.5 million last year. Barclays and J.D. Power predict sales in 2014 will rise again, hitting 16.2 million and 16.1 million respectively.
RBC surveyed dealers and 45 percent said they were somewhat or significantly more optimistic about the next six months, up from 42 percent last month.
However, Toyota's North American chief Jim Lentz said last week that the pent-up demand that has driven the industry to strong growth the last few years will slow in 2014.
(Additional reporting by Bernie Woodall; Editing by Diane Craft)