After record-setting sales year in 2016, things could get bumpy in '17
January 13, 2017
American drivers bought more new cars and trucks in 2016 than they ever have, edging out the record set just one year earlier. That gave the auto industry an unprecedented seventh consecutive year of sales growth.
About 17.5 million light vehicles were sold throughout the country last year, manufacturers reported, an increase of less than half a percent over the record set in 2015.
"The economic picture is good, the stock market is strong, wages are edging up, the job picture is good — a lot of factors worked in favor of good car sales," said Michelle Krebs, senior analyst at Autotrader.
American automakers, in particular, were able to match or exceed last year’s sales totals. Ford had its best sales year in a decade in 2016, the company said, outpacing the previous year by a sliver to sell 2.6 million vehicles. The other Detroit heavyweights, GM and Fiat Chrysler, saw a 1.8 percent increase and no change, respectively.
"Automakers accelerated incentives and promotions the last couple months of the year, sweetening the pot until the year closed," Krebs said. "Their efforts," she said, "paid off in higher-than-predicted December sales that [made] 2016 a record-setter."
The results were a bit more mixed for foreign car companies.
Japan-based Honda sold a record 1.6 million cars in the U.S. in 2016, the company reported, a 3.2 percent increase over the previous year’s record. Meanwhile, Toyota saw its U.S. sales decline 2 percent in 2016 compared to the year prior, the company’s first decline in sales since 2012.
Volkswagen ended the year with U.S. sales down 7.6 percent. The German company was rocked by scandal in 2015 when it was found to have rigged 11 million diesel engine cars with devices to evade emissions tests. A settlement approved in U.S. District Court in October required the company to pay $14.7 billion in penalties, the largest sum in history for an automaker.
For the second year in a row, small sport utility vehicles were the most popular category of new cars as consumers continued to migrate away from small cars and sedans. That shift is driven in part by lower gas prices, as well as preferences for larger vehicles among young families and baby boomers, analysts said.
Many analysts projected last year would surpass 2015’s sales record of 17.5 million, even if only by a few thousand vehicles, as the positive momentum that has buoyed the industry in recent years seems to remain in place. Fuel prices were relatively low, the unemployment rate declined, and credit continued to flow with ease.
But there were also signs that demand wasn’t quite as enthusiastic as years past. Data shows that cars were sitting on dealers’ lots longer before being sold and that sellers were offering larger discounts to get deals done. That may be attributed in part to the fact that pent-up demand from the financial downturn has begun to dissipate.
Forecasts show that car sales are expected to plateau or decline over the next several years, part of the cyclical ebb that analysts expect after so many consecutive years of sales growth. Higher interest rates and uncertainty over the incoming administration could also have a cooling effect on the market, analysts warned.
President-elect Donald Trump has been critical of some American automakers who produce cars in Mexico. Earlier this week, Trump criticized GM for manufacturing some Chevy Cruze vehicles south of the border, then praised Ford for abandoning plans to open a new plant there.
"I think 2017, if I had to describe it, is a year of uncertainty," Krebs said.