Cars sales still sizzle, but higher interest rates loom

• FCA US were boosted by a 28%25 increase for its Chrysler brand and a 25%25 sales increase for Jeep while sales rose 2%25 for Ram

Americans are buying new cars and trucks at the strongest rate since 2001 and spending more on pickups, SUVs and luxury models.

But there are warning signs on the horizon.

"We're entering into uncharted territory," said John Humphrey, senior vice president of J.D. Power and Associates automotive practice. "There will likely be an increase in interest rates. Even a 50 basis point move will have an impact on car sales.

"Leasing is at a historic high of 33% of all sales. That means you have a large supply of soon-to-come-back lease vehicles hitting the market in the next year or two."

But for now manufacturers and dealers can party like it's 2015. This will be the sixth consecutive year new vehicles sales have increased, with the National Automobile Dealers Association revising its 2015 forecast upward to 17.2 million.

The big gainers in June were Fiat Chrysler Automobiles (up 8%) and Nissan (up 13%). Ford sales rose almost 2% while General Motors' fell 3%.

Toyota's sales increased 4% across its Toyota, Lexus and Scion divisions as sales of its light trucks (pickups, SUVs, crossovers and vans) rose by almost 17%. Honda posted a 4% increase across all Honda and Acura models. Volkswagen was up almost 6%.

Subaru sales rose 7.2% on the strength of a 45% increase in its Legacy sedan and a 6% gain for its best-selling Forester SUV.

"Demand for SUVs and trucks continue to drive the market, which resulted in several top automakers posting higher sales in the month of June," said Kelley Blue Book analyst Mark Williams. "Transaction prices continue to climb, increasing 2.5% in June from last year, bringing the average up to $33,340." That would be $821 higher than a year earlier.

Morgan Stanley analyst Adam Jonas expects auto sales to remain strong through 2017 because interest rates are low, consumer sentiment is getting stronger and gas prices have not risen too steeply. Subprime loans, which is a concern among some industry leaders and analysts, are at about 11% of all new car loans compared with 20% in 2007.

For June, sales at FCA US were boosted by a 28% increase for its Chrysler brand and a 25% surge for Jeep while Ram sales edged up 2%. Dodge sales fell 14% and Fiat sales plunged 30%.

"June represented another strong month for our company with sales up 8% and our 63rd-consecutive month of year-over-year sales increases," said Reid Bigland, head of U.S. sales.

General Motors' GMC sales jumped 8%, bolstered by a 21% rise sales of the Sierra pickup and a 17% increase for the Acadia crossover utility. Sales fell at GM's other three brands with Buick down 18%, Chevrolet off 4% and Cadillac slipping 3% from June 2014.

The company's full-size pickup trucks, Chevrolet Silverado and GMC Sierra sold briskly again, but the large SUVs engineered from the same underpinnings -- Chevrolet Tahoe and Suburban, GMC Yukon and Cadillac Escalade -- all fell.

GM intentionally ratcheted down less profitable sales to rental companies and other fleet customers to about 20% of June sales from a monthly average of about 25%, said GM spokesman Jim Cain.

Ford sold 225,647 vehicles in June for an increase of less than 2%. Sales of SUVs were up 10% for the month and the Ford Mustang was up 54%. The Lincoln brand was up 15%.

While the F Series sold at an average price of $44,000, sales of the pickups for the month were down 9% at 55,100.

Cars, both gas-powered and hybrids, continue to sell poorly as consumers gravitate to larger vehicles as long as gas prices are lower than a year ago.

Low interest rates and leasing are making it easier for many consumers to replace older cars with new ones and finance bigger loans to pay for plusher options and trim.

But the Federal Reserve Bank is expected in September to increase the interest rate banks pay to borrow from each other. That would ripple through the entire credit system.

Larry Dominique, TrueCar executive vice president for industry solutions, said manufacturers are starting to spend more on incentives to keep the sales recovery from fizzling.

The industry in June spent an average of 8.9% of each new vehicles selling price on rebates, discounted loans or lease subsidies, up from 8.7% in June 2014, TrueCar data showed.

The biggest spenders, proportionately, were Kia (11.7%). Hyundai (10.5%), Nissan (10.3%), GM (10.2%) and FCA (10.2%).

Contact Brent Snavely: 313-222-6512 or bsnavely@freepress.com. Follow him on Twitter @BrentSnavely.

Contact Alisa Priddle: 313-222-5394 or apriddle@freepress.com. Follow her on Twitter @AlisaPriddle.