Rising interest rates, higher gasoline prices and the threat of a tariff-fueled trade war haven't slowed U.S. auto sales in 2018. But headwinds are increasing, and many industry experts say they believe current sales levels aren't sustainable for much longer.
New light-vehicle sales through the first half of the year increased 1.9 percent to more than 8.6 million, including a 5.2 percent uptick in June. That equated to a seasonally adjusted annual rate of 17.47 million, far surpassing analysts' expectations.
"It does appear, once again, the market seems to be defying gravity," said Jonathan Smoke, chief economist of Cox Automotive. "But I would encourage everybody to not be deceived by the underlying health of that number."
Smoke cautioned that the first-half growth came primarily from fleet sales, while the retail market was flat despite increased incentives.
"Those are conditions that tell us both OEMs and dealers are seeing margin declines, and therefore this behavior can't continue indefinitely," he said.
Industry experts forecast overall U.S. light-vehicle sales this year will come in just under 17 million units, which would be the second consecutive decline following a seven-year growth streak that was capped by a record 17.55 million vehicles sold in 2016.
This year's growth, as in recent years, was driven entirely by sales of SUVs, pickups and crossovers. Car sales fell 12 percent through the first six months of the year to 2.75 million, while light trucks grew 10 percent to nearly 5.9 million, according to the Automotive News Data Center.
Incentives increased 5.7 percent in the second quarter to more than $3,700 on average per unit sold, Autodata Corp. reported. ALG reported that incentives last month accounted for 11.4 percent of the $33,148 average transaction price of a new vehicle, up from 11 percent of $32,931 a year ago.
Heading into the back half of the year, Jeremy Acevedo, manager of industry analysis at Edmunds, expects a small sales decline in the third quarter, and more tapering off to end the year.
The market is "virtually saturated," he said, noting that the U.S. has nearly 1.3 registered vehicles for every licensed driver. "Add to that record-high vehicle prices, rising interest rates and historically high numbers of people who owe more than their cars are worth, and the stage is set for a market contraction."
The rising cost of vehicles combined with the impact of trade rifts could begin to price some consumers out of the new-car market, said Charlie Chesbrough, Cox senior economist and senior director of industry insights.
"It's safe to say in general that the tariffs are going to be bad news for the automotive industry," he said. "It's hard to look anywhere and say these are going to be helpful, at least in the near term, with the exception of, maybe, the used market somewhat."
Cox estimates such tariffs—the White House has threatened tariffs of up to 25 percent on imported vehicles and auto parts—could knock 1 million to 2 million units off U.S. vehicles sales. Those losses could widen if a global trade war erupts, according to Chesbrough.
Jeff Schuster, LMC's senior vice president of forecasting, similarly cautioned that a trade war involving vehicles would be "devastating to sales volume" in the U.S. and other key markets.
General Motors, which has warned that broadly applied tariffs would hurt the industry and trigger job losses, remains optimistic about the health of the industry moving into the second half of 2018.
"Tax reform raised take-home pay, consumer confidence is high and household balance sheets are healthy," said GM's chief economist, Elaine Buckberg. "All of this, plus a strong job market, makes consumers more willing to commit to major purchases like vehicles."
The biggest auto makers in the U.S. all posted increases, wrapping up the first half of 2018 on a positive note amid analysts' forecasts of a rougher ride later this year.
It was the fourth monthly increase and the second-biggest sales advance of the year, led by gains of 9 percent at Hyundai-Kia, 8 percent at FCA US and double-digit gains at several smaller auto makers such as Volvo and Subaru.
GM, fueled by incentives averaging more than $5,200 per vehicle, was up an estimated 5.7 percent in June—GM reports only quarterly figures—ahead of the paces set by American Honda Motor Co. and Toyota Motor Sales U.S.A.
Ford Motor Co. and Nissan North America eked out small gains.
Ford was up 1 percent last month thanks to increased pickup sales. The company's retail sales increased 2.9 percent to 156,788 units, while fleet volume dipped 2.3 percent to 73,847.
At Toyota, June volume jumped 3.6 percent. A 13 percent gain in light-truck deliveries offset a 9.2 percent dip in car demand. Sales rose 4.4 percent at the Toyota division but fell 2.6 percent at Lexus.
At Nissan, June volume rose 1.2 percent, with sales up 2.5 percent at the Nissan brand but down 13 percent at Infiniti. Group light-truck deliveries rose 9.7 percent last month while car sales dropped 7.5 percent.
Honda's light-truck sales rose 12 percent to a June record of 78,483, offsetting weaker car volume and helping the company achieve a 4.8 percent overall gain. June deliveries increased 5 percent at the Honda division and 3.5 percent at Acura.
David Phillips contributed to this report.