For the second straight year, automakers sold a record number of new cars and trucks in the U.S., capping off a seven-year run of consecutive industry sales gains. However, concerns about incentives and bloated car inventory are growing.
With a strong final month of the year, buttressed by big sales and marketing campaigns, automakers sold 17.55 million cars and trucks, a 0.4 percent increase over the 17.47 million vehicles sold in 2015, according to industry tracking firm Autodata.
In December, U.S. auto sales increased 3 percent compared with the same month a year ago.
A lot of the momentum came late in the month, with incentives increasing for a number of manufacturers, said Alec Gutierrez, senior market analyst for Kelley Blue Book.
The industrys sales gains in 2015 and over the past year have been fueled by low interest rates, low gas prices, rising incentives, a willingness by banks to provide longer-term loans and pent-up demand from the Great Recession.
The biggest winners: Automakers that have launched new crossovers and SUVs as consumers have shifted buying preferences to vehicles such as the Buick Encore, Buick Envision, Ford Escape, Jeep Cherokee, Honda CR-V and Toyota RAV4.
It all adds up to a great industry environment for consumers, who are able to get good deals on many vehicles, as well as most manufacturers, Gutierrez said.
Overall, it was a very, very strong year for the industry. There are a lot of positives there, he said. But inventory was outpacing demand at the end of the year, causing higher incentives.
In 2016, sales increased 0.1 percent for Ford, were flat for Fiat Chrysler Automobiles and fell 1.3 percent for GM. Among Asian automakers, sales increased 5.4 percent for Nissan and 3.2 percent for Honda but fell 2.0 percent for Toyota.
But in 2017, the industrys soaring sales increases are likely to come to an end. Most industry executives and analysts say that rising interest rates and gas prices, combined with an end to pent-up demand, will cause industry sales to drop slightly.
In December, the average incentive was about $3,800 up about $800 from the same period a year ago, according to Kelley Blue Book.
Also, many automakers are scrambling to cut back further on car production as they boost production of small and mid-size crossovers.
GM said in November it would cut the third shift of production at its Lordstown, Ohio, plant that makes the compact Chevrolet Cruze. Its also cutting jobs at the Lansing, Mich., plant where it makes the Chevy Camaro and the Cadillac ATS and CTS.
Ford has also cut back on production at assembly plants in Kansas City, Mo., and Louisville, Ky., along with two plants in Mexico.
Certainly we have adjusted to the waning demand of cars in the marketplace as more people have rotated into SUVs, said Ford sales analyst Erich Merkle.
The industry faces an expected flood of newer used cars coming back into the market as leases expire, which could drag down the average transaction prices of new cars.
Still, barring unexpected economic turmoil or a trade war sparked by aggressive action from the incoming Trump administration, experts say the industry will still sell more than 16 million new cars and trucks this year.
Also, automakers might pull back on incentives as they reign in bloated car inventories.
Most automakers will still be thrilled to be operating in an industry that is on pace to sell more than 16 million cars and trucks and will continue to make healthy profits, said Michelle Krebs, senior analyst for Autotrader.com
I dont think we are in a danger zone, Krebs said.