By Adrienne Roberts and John D. Stoll
U.S. light-vehicle sales hit a second consecutive annual high, aided by a fourth-quarter surge in demand that exceeded expectations and bolstered the outlook for an industry that has been a key engine for economic growth.
Such gains, however, are coming with a steep price tag. December's sales pace, one of the strongest monthly performances in the industry's history, was fueled by discounts of $3,542 per vehicle on average, according to J.D. Power, an independent research firm.
That represents a 10% discount off the original asking price and is an incentive level not seen since the beginning of the financial crisis.
Auto makers are dishing out incentives to spark demand for passenger cars, including sedans, which aren't popular when gasoline prices are low. Such giveaways also are necessary to keep drawing buyers to dealerships after seven consecutive years of growth. Even with brisk sales, Detroit's three auto makers are closing some factories in January to lower inventories or even laying workers off at car plants.
Still, President-elect Donald Trump's administration will inherit a far healthier auto industry compared with what President Barack Obama encountered eight years ago. In 2009, auto sales were collapsing amid a wider financial crisis and the Obama administration spent considerable time crafting bailouts for Detroit car companies and figuring out how to goose sales.
Judy Wheeler, Nissan Motor Co.'s head of U.S. sales, said in an interview that with "consumers settling down after the election" and reasonably low gas prices, she sees the industry maintaining its stability into 2017.
Bill Fay, an executive with Toyota Motor Corp., said he thinks the incentive spending that carried 2016 to a record will moderate and 2017 will get off to a strong start.
But some dealers are unsure if the momentum will last.
Phil Maguire, owner of Maguire Family Dealerships based in Ithaca, N.Y., is expecting a strong year ahead and investing in internal operations. He acknowledges low gasoline prices and strong demandfor light trucks are supporting sales. "It will be interesting to see how long the market can hold out."
Auto makers sold 1.69 million vehicles in December, 3.1% more than the same period in 2015 despite one fewer sales day. The seasonally adjusted selling pace of 18.43 million was the highest since July 2005, when General Motors Co. and other auto makers stoked demand with a new campaign that offered employee pricing to all customers. A total of 17.55 million vehicles were sold in 2016, roughly 60% of which were classified as light trucks.
That compares with 17.48 sales million a year earlier and a mix of 56% light trucks. Growth in demand for pricier pickups, sport-utility vehicles and crossover wagons has helped pad auto maker profits as executives invest to speed development of autonomous cars and spend heavily to meet stricter emissions standards.
Shares of GM shot up 5.5% to close at $37.09 as of 4 p.m. trading on Wednesday, just shy of a 52-week high set last month. Ford Motor Co. closed up 4.6% at $13.17.
Audi AG's U.S. chief, Scott Keough, said it is unclear what role the election or response to Mr. Trump's policies had in December's boost, but noted there was a change in momentum for the industry.
"We had the most amount of traffic at our stores that we've ever seen," he said, acknowledging the role incentives played for the German luxury brand and the wider market. "December was an incredible month."
"The country was tangled up in knots for six to seven months not knowing what was going to happen," Mr. Keough said. The certainty after the election, he said, is "a good thing."
Mr. Keough said December is historically a strong month and noted there are still pockets of weakness in the overall market, including certain luxury players.
"We are nearing a peak," Mr. Keough said regarding the luxury market. "We need to manage and behave accordingly."
Dealers are planning for continued good times, with many committing to store upgrades or other facility improvements. Joe Eberhardt, Jaguar Land Rover's North America chief, said Wednesday that 250 of the company's North American dealers have committed to spend a total of $1.5 billion on improvements, including moving to new design elements in showrooms.
"The investments will take time," Mr. Eberhardt said, adding that retailers will spend that money over the next half-decade or so. "A big part of the story line over the next couple years is that sales will remain strong," he said.
Among individual players, GM logged a 10% increase compared with December 2015, selling 319,108 vehicles, while Ford sales edged up 0.1% to 237,785 as F-series pickups posted their best month in 11 years.
Fiat Chrysler Automobiles NV, meanwhile, reported sales slipped 10% to 192,519 vehicles, as it cut back on daily rental sales and continued to rely on Jeep and Ram pickups for an increasing amount of its volume.
Toyota sales rose 2.1%, Nissan sales climbed 9.7% and Honda Motor Co. booked a 6.4% increase to 160,477 vehicles, as a 4% slip in cars sales was lifted by an 18% jump in truck sales.
--Anne Steele contributed to this article.
Write to John D. Stoll at email@example.com
(END) Dow Jones Newswires
January 05, 2017 02:48 ET (07:48 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.