A December U.S. Sales Blast Might Be Right Idea

News last week that General Motors increased incentives on some vehicles could be the start of something bigger for December, and as much as auto makers acknowledge that subsidizing sales can lead to disaster, an end-of-year blowout might be good right now.

Interestingly, a little boost of sorts might assure December runs at a 15.3 to 15.4 million seasonally adjusted annual rate -- not even November’s 15.5 million – to push 2012’s total to 14.5 million (rounded up from 14.45 million, if you will). That’s above the consensus of 14.3 to 14.4 million, and results above “expectations” usually are the type of confidence builder that could create good karma heading into 2013.

If other manufacturers follow GM’s lead and start padding their own spiffs, and as the market leader it has that sway, the December SAAR could approach the 16 million level.

Looking at the numbers, the interconnected triumvirate of sales-production-inventory, a year-end holiday sales blowout in the U.S. might actually be good.

A little house cleaning in December might get some auto makers into an even better position for a healthy 2013.

Even though top-line numbers show the industry overall is at a good level of inventory vs. demand, there are some pockets of excess supply with industry-leader GM responsible for the lion’s share.

Prior to GM upping the ante last week, sales might already have been heading toward the 14.5 million mark for 2012 anyway.  The rebound from delayed purchases in October caused by Hurricane Sandy will continue this month, and volume from damaged vehicles needing to be replaced is expected to start kicking in.

Furthermore, industry data shows incentives from several auto makers increased in November from October, and with the competition for market share getting more intense, one gets a sense the trend is continuing this month without GM’s contribution  – and not from the Detroit 3, necessarily. See Honda, Nissan, Toyota, Volkswagen and Hyundai/Kia.

To its credit, GM has resisted going overboard on incentives to move metal off dealer lots. In a Dec. 3 conference call regarding its November sales,  GM executives said their restraint on market spiffs, as opposed to some their competition, was in part why their biggest volume generator, large pickups, were not faring well in recent months and causing a bulge in inventory.

But besides pickups, a Who’s Who of GM cars and trucks are creeping on to the bloated-stock list including the Chevrolet Malibu, Cruze, Sonic and Traverse; Buick LaCrosse Regal and Verano; Cadillac CTS and GMC Terrain.

It could be there was a grand strategy at GM to overproducing on some vehicles that I’m not knowledgeable enough to fathom.

That said, some streamlining is needed and GM has begun that process through a combination of production cuts, which have started with some selective plant slowdowns this month and in January, and increased sales.

Maybe it would be better to just fully clean house now.

GM adding even bigger rebates, or increasing other subsidized inducements in December, would mean taking a PR hit, and raise questions with analysts.

However, GM could overcome that over the course of the year if it can maintain balanced inventory levels.

In fullsize pickups, the segment where GM has the most bloated in-store volume, a December sales event is not likely to undercut significantly the long-term brand value of the Chevrolet Silverado and GMC Sierra as long as the auto maker still does not have an overabundance of the older versions to sell when the next-generation hits the market in mid-2013.

Another reason to wipe the slate clean ASAP is the poor image high inventory gives a vehicle.

Some of the GM vehicles in question are doing well in the market considering the segments they compete in. Inventory overhang is giving the impression the Chevrolet Sonic and Buick Verano, for example, are faltering in the marketplace when arguably the issue is too much production, not lackluster demand.

At the same time, GM might be helping the industry.

In a growth market, when GM pulls the trigger on spiffs, it creates enough interest in buying a new car or truck that other manufacturers also benefit.

With other auto makers, including Chrysler, Honda, Nissan and Ford having some notable vehicles of their own with robust stocks, they too can tidy up.

There is the specter of pull-ahead sales from 2013 and that it will sacrifice per-vehicle profits and dilute some of the intrinsic value of the vehicles.

However, assuming economic growth continues next year, combined with the huge pent-up demand that has developed over the last few years, sales will continue trending upward throughout 2013. The negative impact on of pull-ahead sales should be negligible.

Of course auto makers would need the discipline to rein in those incentives if they were successful. And that makes the idea a little scary.