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Auto sales expected to match last year's record, but may be plateauing

Auto sales expected to match last year's record, but may be plateauing
Fords await buyers on a dealer lot. (Nate Guidry / TNS)

Growth and vitality: For seven years, that has been the central story for the U.S. auto industry.

That story's coming to an end — the growth part, anyway.

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Final numbers are due Jan. 3, but 2016 figures for unit sales of light motor vehicles are expected to come in right around last year's total of 17.43 million — maybe a bit lower, maybe a bit higher, but not much either way.

For 2017 and the next few years, analysts say, growth is likely to hover around zero.

"We're plateauing, maybe even peaking," said Tim Fleming, an analyst at Kelley Blue Book.

’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16* 0 5 10 15 20 million U.S. light vehicle sales Armand Emamdjomeh / @latimesgraphics Source: Kelley Blue Book *2016 estimate 16.1 13.2 10.4 11.6 12.8 14.5 15.6 16.5 17.4 17.4

It's a high plateau, though: Auto sales are stronger than at any time in U.S. history.

Prices are also at their peak. At $34,077 on average, they're at an all-time high, according to market researcher Edmunds.

That's up 2.7% from last year, and 12.6% since 2011. The main driver: the rise of more expensive crossovers and SUVs and consumers' increasing distaste for traditional four-door passenger cars.

That trend is several years long, but the rate is increasing every year.

"The number of people buying pickups, SUVs and vans in 2016 is unprecedented," said Jeremy Acevedo, an analyst at Edmunds.

’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 40 45 50 55 60% Cars SUVs, Crossovers, Pickups, Vans 40 45 50 55 Cars vs. Light Truck Market Share Data: abcdefg hijkl mnop qrstu vwxyz 1234 56789 Russ Mitchell / @latimesgraphics Source: Edmunds

Low gas prices, rising incomes and consumer confidence, cheap credit and dealer incentives are also to thank for the industry's seven-year sales expansion.

But incentives are heading to less-generous territory, analysts said.

Auto companies push cash-back offers, sweet lease rates, zero down, and other incentives when inventories build up and they need to move vehicles off dealer lots. This year marked a record high for dealer incentives, according to Kelley Blue Book: an average of $3,741 per vehicle, compared with $3,087 last year.

Now, however, automakers have begun reducing production of slower-selling vehicles, in some cases temporarily shutting down factories, which usually translates into less desperation from the car companies and fewer incentives for customers.

The prospect of fewer incentives going forward is "a real sign that things are slowing down in new vehicle sales," Fleming said.

There are other shifts happening as well. Bond rating firm Fitch said pent-up consumer demand for new cars reaching back to the Great Recession has been "satisfied."

And the rising popularity of leases is also cutting into new vehicle sales.

Leases reached 30% of vehicles sold this year, a high figure that is "not sustainable," Fleming said. High lease rates mean more vehicles being dumped onto the used-car market when the lease runs out, which amounts to less revenue for the car companies that sell them. (The risk: not enough vehicles to meet customer demand.)

Beyond softening consumer demand, the auto industry faces other challenges and uncertainties entering 2017.

Vague and conflicting signals from the incoming Trump administration have yet to resolve themselves.

The auto industry will be lobbying for relaxed fuel-economy standards, which could be good for automakers, at least in the short term, if less good for the reduction in greenhouse gases. Car makers say current fuel-economy laws require them to try to sell cars that consumers don't want to buy, leading to lower profits and higher-than-desired spending on research and development. Their critics contend that the standards are necessary to keep the air clean and the planet cooler than it would be otherwise.

Sure to draw scrutiny from Republicans: the $7,500 federal tax credit for electric vehicles. Republicans generally oppose such government subsidies. Donald Trump's view on fuel standards is unknown. He did recently appoint Tesla Chief Executive Elon Musk to his new team of technology advisors. so Musk – whose new-energy product portfolio includes electric cars, solar panels, and storage batteries – will have the President's ear. Or sit close to it, anyway.

Trade policy is the wild card. Trump turned crowds wild with his promise to rip up the "disastrous" North American Free Trade Agreement, or NAFTA.

To automakers and their suppliers in Canada, Mexico and the U.S. have developed tight trade networks that take advantage of the 22-year-old agreement. Knifing those networks would be highly disruptive to the auto industry and the economy, analysts say.

But they're hoping Trump's campaign language was hype. Although some tweaks in the trade deal ,may be needed "I can't imagine anybody would tear up NAFTA," said Ron Harbour, an auto manufacturing expert at consulting firm Oliver Wyman.

Longer term, things are more dicey for automakers. According to a report from Paul Traub, senior business economist at the Federal Reserve Bank of Chicago, auto sales in the U.S. may have hit an absolute peak.

Traub said the length of new vehicle ownership is trending higher. People increasingly are working from home. Millennials, on the whole, are less enthusiastic than their parents about owning a car.

And, of course, driverless cars and trucks are coming, and nobody really knows much yet about what that will mean for the 120-year-old industry.

Twitter: @russ1mitchell

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