For months we've argued that record auto sales have been propped up by low interest rates, a perpetual loosening of auto lending standards with terms being stretched to the max and a wave of leases, all of which have allowed the American consumer to trade up to more expensive vehicles while maintaining low monthly payments. 

And so far, this perfect alignment of the stars has propelled U.S. auto sales to record highs.

That said, with rates recently on the rise and a flood of lease returns driving down used cars prices (see "Record High Lease Returns Set To Wreak Havoc On Used Car Prices"), the tailwinds that have propelling auto sales to record highs over the past several months look set to change course.

As we noted recently, a quick look at the 61+ day delinquencies in General Motors' subprime securitization book would seem to support our rather negative thesis on future auto sales with January 2017 delinquency rates soaring to the highest levels since late 2009 / early 2010.

Meanwhile, looking at GM's subprime data going back to 2001 implies that historical spikes in 2-month delinquency rates is a fairly decent indicator that all is not well.

Unfortunately, at least for the auto OEMs and their investors, at this phase in the cycle the only way to 'juice' volume is through artificial market share gains courtesy of excessive incentive spending...which, as we all know, likely signals the beginning of the end of the auto cycle which will quickly be followed by a race to the bottom for OEM profits. 

And, right on cue, it looks as if General Motors has kicked off the "Incentive War" with massive YoY increases in incentive on the auto industry's most profitable segment, pickup trucks.Per Bloomberg:

General Motors Co. boosted incentives on its pickup models this month after its biggest foes gained ground, intensifying a price war within the U.S. auto market’s most hotly contested segment.

Discounts averaged about $6,996 for the Chevrolet Silverado and $5,315 for the GMC Sierra this month through Feb. 12, according to J.D. Power dealer data obtained by Bloomberg News. Incentives on GM’s models surged 56 percent and 82 percent, respectively, from a year earlier as Fiat Chrysler Automobiles NV and Ford Motor Co. dialed back their spending, according to the researcher.

“It’s taking a lot more incentives now to move the metal than it did last year or certainly the year before,” said Michelle Krebs, senior analyst with car-shopping website Autotrader.com. “Things are slowing.”

Of course, the increased incentive spending from GM comes as they ceded market share to both Ford and Chrysler in 2016.

Of course, we suspect that this kind of aggression will not be allowed to go unchecked and will inevitably be matched by Ford and Chrysler.

On your mark, get set, go....