As sales lose sizzle, is industry prepared?

DETROIT -- After six years of rapidly rising U.S. sales, a new reality is settling in on automakers, dealers and suppliers: The road ahead will be much tougher.

New light-vehicle sales in the U.S. may set another record in 2016, after rising 5.7 percent to 17.5 million last year. But the growth rate almost certainly will fall to low single digits this year, and that may be achieved only with heftier incentives and thinner profit margins, analysts say -- and some warning signs began flaring up in the fourth quarter.

In 2017 and 2018, the market likely will be flat or even dip, economists such as Steven Szakaly at the National Automobile Dealers Association and Tom Webb at Cox Automotive predict.

It all adds up to a dramatically different landscape from the go-go times the industry has enjoyed lately.

"There's a huge difference between a growth environment and a plateau environment," AutoNation CEO Mike Jackson said Tuesday at the Automotive News World Congress. "It requires a different skill set. We have to manage different."

Already, some companies are adjusting. Hyundai Motor Co. last year considered adding an assembly line at its plant in Montgomery, Ala.

Adding a line would have been an obvious move a few years earlier, when Hyundai's U.S. sales growth had slowed because its supply was constrained. But given the rapid consumer shift from cars to trucks, and looking ahead at an expected slow-growth market, Hyundai opted instead to retool the plant to produce the Santa Fe Sport crossover and reduce output of the Elantra compact and Sonata midsize sedans by 50,000 per year.

"If you look at historical industry cycles, it has generally been about a seven-year run," Hyundai Motor America CEO Dave Zuchowski said earlier this week at the Detroit auto show. "We're nearing the end of a good seven-year run, and I definitely think it starts flattening out, though I don't see a collapse."

Likewise, Bob Lutz, former General Motors vice chairman, counseled automakers and suppliers to move cautiously. "Don't assume the good times are going to last," he said. "Don't increase capacity. Try squeezing every car out of the capacity you have."

Suppliers, he noted, sometimes take low-margin contracts to get a foot in the door with an automaker. That would be a bad move now, Lutz advised: "Don't take marginal business."

While recognizing the market has entered a slow-growth phase, some companies still count on bucking the trend.

"We will have a record" sales year again in 2016, said Tom Doll, president of Subaru of America. He expects U.S. sales of 615,000 Subarus this year, or a 5.5 percent increase from 2015. Last year, Subaru's U.S. sales rose 13 percent to 582,675 -- more than double its 2011 total.

Supplier Magna International, whose products include seats, vision systems, electronics and powertrain components, expressed confidence that Magna can continue to outpace the market. Chief Marketing Officer Jim Tobin said new-vehicle launches drive Magna's growth.

"Even though the market isn't growing rapidly, there's a lot of new vehicles [coming], and the midcycle enhancements are getting closer and closer together," he said.

Jose Munoz, chairman of Nissan North America, acknowledged he sees "a little saturation" and thinks the market will plateau soon. Still, the automaker is striving to lift its U.S. market share to 10 percent by the end of the fiscal year that ends March 31, 2017. Nissan and Infiniti together had 8.5 percent of the U.S. market in 2015.

The Detroit auto show provided a preview of new models manufacturers are counting on to keep sales rising. But notes of caution tempered the upbeat mood.

"This is six straight years now of not only growth but growth in excess of a million units a year," said Jim Lentz, CEO of Toyota North America. "It's unheard of to have six years of growth. It's really unheard of to grow by a million units a year, year after year."

Toyota, he added, has worked to build flexibility into its manufacturing operations and believes it can adjust to a 15 percent drop in the market by slowing line speeds or other measures. "We know there will be a slowdown in the industry," he said. "We'll be able to adapt."

In the retail sector, Penske Automotive Group CEO Roger Penske said the expected slowdown means companies should focus more on internal efficiency than expansion. His company is working to turn more Internet leads into sales, improve its online presentation of vehicles to customers and make it easier for customers to at least start their transactions online.

"We've got to take cost out, become more process-oriented in our discipline," Penske said.

Few, however, were as dire in their warnings as AutoNation's Jackson.

He sees signs of trouble: AutoNation finished 2015 with 20 to 25 percent more inventory than a year earlier, and its gross profit fell $250 to $300 per vehicle in the fourth quarter.

Jackson told the Automotive News World Congress that the industry knows how to manage when sales are rising or falling. But its track record when sales are at a plateau is dismal: Every brand thinks it can outperform the market and companies are tempted to do whatever it takes to keep sales climbing.

He urged retailers and manufacturers to adjust their strategies.

"Don't be in denial," he said. "We've failed the test every time."

Hans Greimel, Diana T. Kurylko, Jamie LaReau and Arlena Sawyers contributed to this report.