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Spending on new cars may break record in December

Abel Mitja Varela | Vetta | Getty Images

With millions of dollars worth of television commercials airing this month—and millions more in incentive money on the table—automakers are expected to end the year with a bang.

Total vehicle sales are expected to be up at least 4 percent year over year, with the industry anticipating all-time record consumer spending on new vehicles, according to a forecast.

While new car sales started the month slowly, they are expected to finish strong, according to a monthly sales forecast developed jointly by J.D. Power and LMC Automotive. That would be a welcome development for industry planners concerned about a recent bulge in dealer inventories, which has led several manufacturers to trim production.

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Consumers are expected to spend more than $34 billion on new vehicles this month, a historic high for December. It reflects not just the end-of-year sales burst but record transaction prices, according to the forecast.

The optimism was reinforced by a report released by the Department of Commerce on Friday indicating that the economy was expanding more rapidly than had been thought. The department now estimates the country's economy grew by 4.1 percent during the third quarter.

"Strong consumer demand in December is the culmination of another strong year for the automotive industry," said John Humphrey, senior vice president of the global automotive practice at J.D. Power. "Retail sales in 2013 are expected to reach $12.8 million, with consumer spending reaching a record $375 billion, a $40 billion increase from 2012."

Total light-vehicle sales in December are projected at 1.4 million, up 4 percent increase from las year, with a slight year-over-year rise in fleet volume. Fleet share of total light-vehicle sales in December remains below 17 percent, compared with 17.6 percent for the year as a whole.

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Total light-vehicle sales should finish 2013 at 15.6 million units. LMC Automotive has increased both its total- and retail light-vehicle sales forecasts for 2014 by 100,000, to 16.2 million and 13.3 million units, respectively.

The group's forecast for total vehicles sold falls right in the middle of the range. Consulting firm IHS Automotive last week predicted a slightly lower 16.1 million, while other forecasts have offered numbers ranging as high as 16.5 million for all of 2014.

"The budget deal in Washington is helping fuel a higher level of optimism for the economy and auto sales in 2014," said Jeff Schuster, senior vice president of forecasting at LMC Automotive. "December sales faced some challenges early in the month, with some sales pulled ahead in November and winter storms" keeping a number of buyers out of showrooms, he said.

But, he added, sales "have rebounded well, and the year ahead is set up to edge new-vehicle sales closer to prerecession levels."

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Vehicle production in North America through November is up 5 percent from the same time frame last year, with nearly 700,000 additional units. Even as inventory has increased, production volume remained strong last month, at 1.4 million units—a 4 percent increase from November 2012.

But there are some concerns that the industry may be turning up production faster than the market can handle. General Motors, Ford Motor and Chrysler continued to build inventories last month, and their combined supply climbed from 87 days at the beginning of November to 93 days by the end.

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Schuster said that though it's normal for manufacturers to build up inventory to meet year-end demand, the level is slightly ahead of expectations, and stocking up so late in the year could affect first-quarter production.

Some of the buildup can be traced to dealers' ordering pickup trucks and utility vehicles before the planned shutdowns for model changes at GM and Ford. But those two makers also have decided to take more downtime at some of their plants this month in an effort to reduce excess stock.

"We're now on a true turn-and-earn policy," Mark Reuss, president of GM North American operations, told TheDetroitBureau.com. "We're running our plants based on what we sold last month."

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In contrast, manufacturers in Europe and Asia all maintained or reduced inventory levels last month.

Given the unexpected production push from Detroit's Big Three, Schuster said, LMC Automotive has increased its volume outlook for 2013 North American production to 16.2 million units.

First-quarter 2014 production is expected to grow to 4.2 million units, 4 percent more than the same period in 2013. Full-year production is forecast at 16.6 million units, which would be up 3 percent.

By Joseph Szczesny. CNBC Contributor Paul A. Eisenstein contributed to this report. Follow him on Twitter @DetroitBureau or at thedetroitbureau.com.

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