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Record Car Sales in 2015

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Cheap gas drove U.S. car sales to record in 2015

Published: Jan 5, 2016 8:31 p.m. ET



U.S. car sales in 2015 jumped to a record, clearing a peak last reached 15 years ago as cheap gasoline, employment gains and low interest rates spurred Americans to snap up new vehicles.

In all, auto makers sold 17.5 million cars and light trucks in the U.S. last year, a 5.7% increase, and on average paid more for each one. Americans overall spent about $570 billion on new rides–fueling an industry revival that is putting more money in the pockets of auto workers, dealers and executives.

With gas hovering around $2 a gallon nationwide and credit plentiful, auto makers are projecting a continuation of the robust demand for higher-margin pickup trucks and sport-utility vehicles now fattening their bottom lines. Those larger vehicles account for more than half of U.S. sales, pushing the average transaction price to $34,428, according to automotive data provider Kelley Blue Book.

The new peak raises the question of whether the good times can last. Ever since the Model T remade the U.S. industrial landscape, car makers have had to grapple with inevitable downturns following periods of significant sales gains. Signs of an industry sea change are cropping up with self-driving cars and car-hailing services threatening Henry Ford's vision of putting a car in every garage.

Analysts cautioned the torrid sales pace could taper. Higher interest rates and a glut of cars coming off leases leading to a flood of late-model used cars could turn the tide against new-car sales. The industry's seasonal adjusted annual selling pace fell to 17.3 million in December from 18.2 million the month before, suggesting some slowdown at year-end. On Tuesday, investors reacted to the December sales figure by sending shares of General Motors Co. and Ford Motor Co. lower.

Some cautioned the booming market could spur auto makers to increase their spending on discounts and return to the ugly price wars that once conditioned consumers to wait for better deals.

So far, there are no signs of it. Sales should rise this year before falling next, says AlixPartners LLP, a consulting firm that does work for auto makers. Average incentive spending across all auto makers rose to $3,063 per vehicle in 2015 from $2,809 a decade earlier, according to Kelley Blue Book and data provider TrueCar Inc.

"Auto makers will reach a bit deeper into their pockets to subsidize zero-interest-rate loans, masking the impact on the consumer but at the expense of [company] margins," said Brian Johnson, a Barclays PLC auto analyst.

Mr. Johnson said the impact of such incentives would be offset in part by lower costs for steel and other materials that go into cars. Car executives, meanwhile, insist interest rates aren't yet rising fast enough to significantly dent sales.

And Detroit's car makers are in better financial shape than 15 years ago. At the beginning of the century, the Big Three were saddled with cost structures that executives knew were unsustainable. Spending billions of dollars annually on health care for retirees and churning out models that Americans showed little interest in buying. Ford, GM and Chrysler were increasingly reliant on deep discounts and sales to rental car firms to keep sales on par with surging foreign rivals.

The trio, however, bled market share on a consistent basis and spent much of the decade laying off workers and closing assembly plants. When gas prices started to rise mid-decade, the traditional practice of relying on gas-guzzling trucks and SUVs also collapsed, leaving Detroit with a debt load they couldn't support due to the amount of cash they were burning.

GM and Chrysler required government rescues and bankruptcy restructurings to survive in 2008 and 2009, but then emerged relatively free of burdensome debts and with concessions from unionized workers.

Now, they face new challenges.

Longer-term, auto makers face the prospect of Americans increasingly settling in urban areas and potentially forgoing car purchases while taking advantage of ride-sharing services from Uber Technologies Inc. and Lyft Inc. Underscoring the burgeoning industry disruption, GM this week unveiled a $500 million investment in Lyft with the eventual goal of developing a driverless-car hailing service.

Alphabet Inc.'s Google and other well-capitalized technology companies are ramping up efforts to redefine traditional car ownership, emphasizing transportation as a service. Still, younger buyers often attracted to such services are making up an increasing percentage of U.S. car sales, according to researcher J.D. Power and Associates.

Bob Carter, a Toyota Motor Corp. executive, said owning vehicles remains vital for those starting families. Young adults are migrating toward small SUVs, he said, and millennials accounted for more than a quarter of Toyota's sales in the final three months of 2015.

"When you go to car share or fractional ownership, the model is viable in downtown San Francisco," Mr. Carter said of younger Americans. "But when their life stage changes, an automobile becomes a crucial part of their life and we are starting to see that."

Mark LaNeve, Ford's U.S. sales chief, said cars could suffer additional wear and tear amid ride-sharing, prompting them to be replaced faster.

For now, auto makers are booking healthy profits, helping lift the overall U.S. economy. John Bergstrom, owner of new-car dealer Bergstrom Automotive in Neenah, Wis., said the economic revival is helping the auto industry.

Mr. Bergstrom says new Jeeps drive off his lots almost as soon as they arrive. Demand propelled Jeep owner Fiat Chrysler Automobiles NV to a 13% gain in December. Jeep sales soared 42%.

Ford reported its sales increased 8.3% to 237,606 vehicles for the Detroit auto maker's best December. Sales of its best-selling F-series pickups rose to a 10-year high. For the year, Ford's U.S. sales rose 5.3%.

GM logged a 5.7% increase for the month to 290,230 vehicles amid continued momentum for its Chevrolet Silverado and GMC Sierra pickup trucks. Annual sales rose 5%.

Toyota's sales rose 10.8% in December. Honda Motor Co. reported U.S. sales overall rose 9.9% to 150,893 in December.

Nissan Motor Co. pushed out a December record with an 18.7% leap to 139,300 vehicles sold. Crossovers, trucks and SUVs also set a record for the month, rising 41%.

Volkswagen AG's U.S. sales fell in December and for the full year in the wake of decisions to halt sales of more than 500,000 diesel-powered vehicles amid an emissions-cheating crisis.

Among German luxury auto makers, BMW AG edged Daimler AG's Mercedes-Benz to retained its sales crown for the month and year even though its sales fell 16% in the year's final month. It sold 34,625 vehicles last month compared with 34,203 for Mercedes-Benz. Volkswagen's Audi brand was third with a 6% gain for the month and 11% on the year.

Mike Ramsey, Anne Steele and Christina Rogers contributed to this article.