The road ahead in autos: Luxury booms and incentives soar

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Getty Images

After seeing business rebound over the last four years, 2014 will mark the last of a five-year run where the U.S. auto industry grows annual sales by at least 5 percent. It’s one of several predictions I’ve come up with for the next year in the auto industry.

A year from now my prognostications may look foolish (look at my 2013 scorecard), but I’m fairly confident the 2014 auto industry will be marked by four major stories.

Partial Chrysler IPO? No way

I won’t rehash the on-again, off-again negotiations between Fiat/Chrysler and the UAW VEBA Trust over how to monetize the trust’s stake in Chrysler. Yes, Fiat and the trust have filed for an IPO of 16 percent of Chrysler, but I don’t think it will happen.

Why? At the end of the day, Fiat CEO Sergio Marchionne not only wants but also needs to get the remaining 41.5 percent of Chrysler that his firm doesn’t own. Marchionne needs Chrysler’s cash flow to fund the restructuring of Fiat and Chrysler’s expansion overseas.

He may not like the high price the VEBA Trust is driving right now, but somehow he’ll find a way to strike a deal so Fiat will get the rest of Chrysler and avoid a partial IPO. Don’t underestimate how crafty Marchionne can be when he needs to get a deal done.

Entry-level luxury boom

Have you seen the red-hot new Mercedes-Benz CLA-Class? How about the Audi A3 hitting showrooms this spring? Oh, and the new ATS is a huge reason why Cadillac sales have jumped 25 percent this year.

If you haven’t noticed, the battle among luxury automakers for entry-level sales (models starting at prices just under $30,000) has become one of the most intense fights in the auto industry.

Who wins? All of the luxury brands. Who loses? The mass-market sedans (think Camry, Malibu, Taurus) that have traditionally sold at near and above $30,000. Buyers in that price range will increasingly go for the luxury model when they have a choice.

Let’s make a deal

We’ve been waiting for incentives to kick in and for dealers to start throwing out richer rebates as a way to drive higher sales. So far, it hasn’t happened.That changes in 2014.

Why? Over the past four years, there’s been enough demand that automakers have been able to grow sales while not goosing incentives to outrageous levels.

In 2014 that starts to change as automakers and dealers feel the pressure to tougher year-over-year sales comparisons. Also, there are so many new models hitting showrooms this year (more than 50 are scheduled) that it will be tougher to get buyers to consider older models. That’s where a little extra cash on the hood will do the trick and close a deal.

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Tesla takes off worldwide

If you think Americans are fascinated with the way Tesla CEO Elon Musk has thrown a scare into automakers here in the States, watch what happens around the world in 2014.

Tesla sales are poised to take off in Europe, and there will be healthy demand in China once deliveries of the Model S start in that country in the second quarter.

Will Tesla have huge numbers overseas? No. The company is ramping up production at a measured pace. Still, I expect Tesla to see decent sales growth in Europe (it’s already doing well in the Scandinavian countries) as it expands supply there.

In China the government’s move to push electric car sales in that country will help spur Model S demand.

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A look back at 2013

When I look back at my predictions for the auto industry in 2013, I was on the mark or fairly close, with 4 out of 5 predictions.

Auto sales did soar past 15 million this year. GM shares did rise above the IPO price of $33. Lincoln remained stuck in neutral, as I predicted, but I was wrong in expecting the same from Cadillac.

Caddy sales jumped more than 20 percent this year, and the brand is on the right road with the new ATS and redesigned CTS. Toyota has surged in front of GM in global sales, as I predicted, but Volkswagen has not caught the American automaker. It will be a tight race this year as all three need to sell more than 9 million vehicles each. Electric Vehicles, as a whole, have to connect with U.S. buyers.

Yes, GM, Nissan and Tesla will each set annual sales records for the Chevy Volt, Nissan LEAF and Tesla Model S, respectively. Still, in a market where more than 15.5 million vehicles are sold, EV sales totaling roughly 75,000 shows electric cars are a long way from catching on with much of America.

—By CNBC’s Phil LeBeau. Follow him on Twitter @Lebeaucarnews.

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