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Auto sales to end year strong, "fiscal cliff" may weigh

By Deepa Seetharaman

DETROIT (Reuters) - U.S. auto sales are expected to show a rise of 9 percent for December, capping off the best year for the industry since 2007, fueled by easier access to credit, rising home prices and pent-up demand.

But when major automakers report December sales next Thursday, a strong end to the year could be overshadowed by concerns that consumers will curb spending in January due to the "fiscal cliff."

U.S. consumer confidence fell to a four-month low in December on worries over the $600 billion in automatic spending cuts and tax increases that take effect unless Congress acts to stop them.

Overall, 2012 sales are expected to finish at 14.5 million vehicles, more than 13 percent higher than the previous year. This marks the third straight year that the industry has posted a double-digit sales gain.

Gains in 2013 are expected to slow to single-digit growth, with several analysts forecasting only modest improvements in U.S. consumer confidence and employment.

Kelley Blue Book said a tax increase for middle-income households could hold back sales growth through 2013 and beyond.

However, most analysts said the looming deadline did not hamper sales in December. Analysts polled by Thomson Reuters forecast that December's annual sales pace will be around 15.2 million vehicles, helped in part by higher incentive spending on full-sized pickup trucks.

"Given relative strength in consumer sentiment post last month's election - even in spite of the fiscal cliff - and improvements in labor data, we expect healthy retail demand to spur a strong month," Barclays Capital analyst Brian Johnson said.

Auto sales are an early indicator each month of U.S. consumer demand and industry executives have pointed to the improving housing market and consumer confidence as reasons for optimism in 2013. Higher home prices can help American car shoppers feel wealthier and translate to higher auto sales, industry research firm Edmunds.com said.

In addition, the average age of cars on the road has risen to just above 11 years, and industry experts say that will continue to drive demand.

According to TrueCar.com data, large trucks had an average discount of 11.4 percent in December, 75 percent higher than the overall industry discount of 6.5 percent. Analysts said General Motors Co in particular layered on incentives to cut its inventory ahead of its introduction of 2014-model trucks in the second quarter of 2013.

"All eyes will be on the full-size pickup segment where GM clearly got more aggressive to draw down their 139 days of inventory," RBC Capital Markets analyst Joseph Spak said in a research note.

The preferred level in the auto industry is about 80 days of supply for full-sized pickup trucks like GM's Chevrolet Silverado and GMC Sierra. Ford Motor Co had 89 days of supply for its F-Series pickup trucks.

The industry also got a boost from sales that were delayed due to Hurricane Sandy.

Johnson estimated that 25,000 to 30,000 vehicles sold this month were delayed from November due to Superstorm Sandy, which ravaged the U.S. Northeast the month before. The storm prompted many car shoppers to shift their purchases, adding about 300,000 to the annualized sales pace for December.

"We note, however, that we do not expect post-storm replacement demand to persist much beyond January," Johnson said.

(Reporting by Deepa Seetharaman in Detroit)

(This story was refiled to correct the day of auto sales to Thursday, in the second paragraph)

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