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Low gas prices could bring high December auto sales

Customers look at a car inside an Audi dealership in ShanghaiCustomers look at a car inside an Audi dealership in Shanghai

December U.S. auto sales – spurred by discounting, low gasoline prices and rising consumer optimism – are expected to cap a strong 2014 and serve as a springboard for another year of robust sales in 2015.

The monthly total, to be announced Monday, could be in the neighborhood of 1.5 million vehicles for the month according to numerous estimates, up nearly 10 percent over the same month last year. That outcome would boost yearly sales to nearly 16.5 million vehicles for the year, setting the stage for perhaps a record-breaking year for 2015 of 17 million sales or more.

“With the strongest demand in a decade, gains in highly profitable segments and modest incentive growth, automakers should be grinning as they close the books this year,” said John Krafcik, president of TrueCar, an automotive buying website.

Accompanying the bright sales picture is a very healthy production outlook for North America. According to the Automotive News, output for 2014 in the U.S., Canada and Mexico will total 17.24 million vehicles, an increase of 7 percent from 2013. The last peak in North American production was 2000 with nearly 17.3 million vehicles built.

The hottest North American growth area for production was Mexico, where vehicles built will top 3 million for the first time. The country’s liberal automotive trade policy has resulted in agreements that facilitate vehicle exports, especially to South America.

A strong 2014, however, doesn’t guarantee continued healthy results – conditions can turn very quickly, and often do, because of a spike in energy prices, a financial crisis or some other unanticipated disruption of employment and economic growth.

Five years ago, during the global financial crisis, North American automotive production stood at roughly half of today’s level, creating widespread business failures. Today, parts and components suppliers are straining to keep up with rising demand, but many are reluctant to invest in new capacity because they are apprehensive about another collapse or disruption.

TrueCar analysts expect December’s total sales to be 86.5 percent retail and 13.5 percent rental-car and other fleets. That breakdown compares with an 85.7 and 14.3 percent mix a year ago. Automakers prefer retail sales because they usually bring heftier profits. Used-car sales for the month are expected to total 4.45 million, up 18.9 percent for the month.

Automakers spent an average of $2,894 per car in incentives or discounts from the list price during the month, a 5.7 percent increase from a year ago. The automaker spending the most on incentives was General Motors (GM) with $3,632 per vehicle; the least was Subaru, whose hot-selling cars needed only $729 of incentives per sale.

The next installment for automotive sales forecasting traditionally begins with the press preview of North American International Auto Show in Detroit, which starts on Jan. 12. Auto executives routinely issue rosy projections, which in part are meant to put consumers in the mood to buy cars. Last year’s predictions were, if anything, not quite rosy enough.