By John D. Stoll 

North American light-vehicle production soared last month to an August record high, potentially boosting the need for generous sales incentives as inventory on dealer lots balloons to a multiyear peak and auto makers scramble to set another annual volume record.

General Motors Co. led the industry with a 21% increase in output to 372,678 vehicles produced in the region, according to industry data firm WardsAuto.com. The No. 1 U.S. auto maker by sales volume has been short on inventory in recent months, which helped drive its U.S. market share to the lowest level in several decades.

Wards estimates 1.69 million vehicles were produced in the U.S., Mexico and Canada last month. The surge comes even though retail demand for new light-vehicles is flagging and consumer appetite for used cars in good shape appears to be strengthening.

Meanwhile, September production is forecast to grow modestly, according to Wards, with GM continuing to ramp up output. Wards forecasts a slight increase for full-year production.

GM is now stocked with the largest inventory among major auto makers except Volkswagen AG, according to Wards, holding 74 days of supply, a level up sharply from July's 66 days and the 63 days at the end of August 2015. The broader industry's 61 days of supply at August 31 marked the second consecutive month that overall stock levels hit a 12-year high.

Haig Stoddard, Wards' industry analyst, said soft August sales in part led to the higher inventory levels. Even if the industry finishes 2016 on a strong note, Mr. Stoddard said, auto makers won't need to increase output at North American factories, given the glut of dealer stock available.

The boost in production over the summer months could further help third-quarter financial performances at GM and Toyota Motor Corp., among others. Besides GM, several car makers posted output increases for the summer.

Car companies book revenue and profits on production, not sales to end users. A glut in the market, however, can come back to bite the industry because costs for sales promotions eventually need to be accounted for.

While light-vehicle sales through August were slightly ahead of 2015's record pace, auto makers have been paying more to keep demand humming.

J.D. Power estimates retail sales, or deliveries to individuals at dealerships, fell 1.3% to 9.3 million over the first eight months of the year compared to the same period in 2015. Overall sales are up 0.6% over that period, buoyed entirely by fleet sales to rental car companies and government and commercial buyers.

Car buyers received a $3,378 in incentives on a new purchase in August, according to Autodata Corp., or a 10% discount. Incentive spending is up 12% compared with the previous year, according to the firm, driven largely by increases at Ford Motor Co., Fiat Chrysler Automobiles NV, GM and Toyota.

In a note to investors earlier in September, Morgan Stanley auto analyst Adam Jonas said higher inventory and spending on discounts were fueling concern the U.S. auto market has peaked.

But Mr. Jonas also said car companies have plenty of tools to keep buyers interested. Cheap financing, including subsidized leases and low-interest loans, has helped keep payments low. "We would not underestimate the industry's ability to keep the cycle going," Mr. Jonas said, after auto sales fell short of expectations in August.

Auto executives, however, must combat the growing supply of late-model used cars flooding the market as leases expire or qualified buyers look to update their vehicles.

On Wednesday, used-vehicle retailer CarMax Inc. said same-store car sales grew 3% in the fiscal second quarter, and selling prices crept up 2.3%. Revenue growth, however, fell behind expectations and profit declined during the quarter because of one-time charges and lower store traffic.

Black Book, which tracks car prices, says used-car values are beginning to erode compared with a year ago on vehicles made since the U.S. financial crisis. The decline reflects increased supply.

New-car pricing is threatened when buyers are paying less to get used cars in good condition.

Write to John D. Stoll at john.stoll@wsj.com

 

(END) Dow Jones Newswires

September 21, 2016 17:07 ET (21:07 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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