As 2016 is almost over, the U.S. auto market is on the verge of setting a new sales record, beating last year's mark of 17.5 million new cars and trucks. Auto sales have been booming for several years, powered by a combination of cheap gas, easy credit, and pent-up demand. And with the unemployment rate now below 5%, there are plenty of Americans who now need a reliable, technologically up-to-date vehicle to get to and from work.
Although some analysts think the market has plateaued and that there's no more growth to be had, the fundamentals point to continued strong sales before a downturn — a downturn that at worst would probably only knock at most a million off the current pace. That's the good news. The bad news is that there's a clear structural shift occurring when it comes to consumer demand. For decades, sales have been composed on a mix of vehicles, primarily passenger cars and pickup trucks. For a brief period after the Toyota Prius was introduced and gained popularity in the early 2000s, hybrids came into the picture. But the big shift arrived when the SUV appeared. Profits on these vehicles were so good that many automakers gave up on small cars, only to be caught in a bind when gas prices spiked after the financial crisis. Compromising the mix came back to haunt them.
After some time most of them got smarter and started building high-quality compact SUVs — often called "crossovers" because they're constructed to drive more like cars than trucks and offer good fuel economy — and these vehicles have now become wildly popular. They've effectively taken over the market, especially for entry-level vehicles. Meanwhile, a spate of new sedans and sports cars have struggled to find a buyership. This has occasioned abundant hand-wringing among market observers, with the latest round coming as the big three adjust their factory output to match demand. Over 2017, there's going to be a furious debate in the industry about whether its worth it to go all-in on crossovers and SUVs, risking the possibility that rising gas prices in the future could lead to a repeat of history.
