By John D. Stoll and Eric Morath

The auto industry has been a bright spot during much of the recent U.S. economic expansion, but the country's car buyers are showing signs of fatigue, raising concerns over the broader outlook for consumer spending -- a key engine of U.S. growth.

Sales of light vehicles in the U.S. have increased for six straight years, touching a record 17.5 million units in 2015, and are potentially on track for another record this year. But sales now appear to have plateaued, leading to a buildup of inventory and a return to discounting -- something auto makers swore off when emerging from the recession.

Dealership sales, measured in dollars, fell a seasonally adjusted 0.5% in November from the prior month, the Commerce Department said Wednesday. Light-vehicle sales, in units, were up 0.1% through November, compared with the same period in 2015, according to Autodata Corp., but that small gain is due to increases in sales to fleet buyers, such as car-rental firms.

Manufacturing output of motor vehicles and parts fell 2.3% last month, the first pullback in six months, the Federal Reserve said on Wednesday.

With vehicle supplies outstripping demand, prices are being slashed.

Last month's stockpile of 4 million vehicles, or a 73 days' supply, is the highest level recorded for a November, according to WardsAuto.com. Haig Stoddard, a Wards analyst, said last week that auto makers will need a strong sales performance in December to keep first-quarter production schedules intact.

Average incentives, including rebates and discounts, reached a record $3,542 per vehicle this year, market-research firm J.D. Power said. Though transaction prices have averaged a record $31,044 in 2016 -- driven primarily by customer migration to pickups and SUVs from cheaper cars -- the 9.9% discount offered on those vehicles exceeds the previous high set in 2008, when sales were collapsing.

In addition to conventional rebates, auto finance companies are making deals with an increasing number of buyers who have negative equity on the cars they are trading in. J.D. Power estimates that 31.3% of buyers in November were upside down -- meaning they still owed more than the vehicle was worth -- on their auto loan, the highest level since June 2006.

Lenders are stretching out terms on loans to keep cars as affordable as they were a decade ago.

"At some point, someone is going to say we can't go to a 96-month loan," Bill Fox, co-owner of Fox Dealerships in Auburn, N.Y., said in an interview earlier this month.

A red signal for the auto industry could spell trouble for consumer spending more widely. Growth in car sales outstripped overall retail spending from 2012 through 2015. This year, auto demand has fallen back in line with other measures of consumer spending.

Retail sales, including purchases at stores, dealerships, restaurants and online, advanced only slightly in November from October, but were well up from a year earlier, according to the Commerce Department.

The data suggested holiday shopping is off to a better start than 2015's lackluster season, but spending isn't likely to increase fast enough to maintain the 3.2% growth in gross domestic product recorded in the third quarter. Consumer spending, at retailers and on services, accounts for about two-thirds of U.S. economic output.

After the latest retail data, J.P. Morgan Chase reduced its fourth-quarter growth projection by a half percentage point, to a 1.5% rate.

"The larger message looking at the smoothed trend for consumer outlays is one of continued restraint," J.P. Morgan economist Michael Feroli said.

With an uncertain election season over, that could change. Costco Wholesale Corp. Chief Financial Officer Richard Galanti said that the week of the election "was worse than a snowstorm in terms of nobody wanting to go out and buy stuff."

The retail giant reported that November sales through Thanksgiving weekend were up 3% on a year earlier.

Write to John D. Stoll at john.stoll@wsj.com and Eric Morath at eric.morath@wsj.com

(END) Dow Jones Newswires

December 14, 2016 19:57 ET (00:57 GMT)

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