5 key auto trends, issues to watch in 2016

Automakers sold more new cars and trucks in 2015 than in any other year in history and appear to be on track for another record year this year.

But that doesn't mean it will be an easy year for the industry or for all automakers.

Analysts from Kelley Blue Book and Auto Trader outlined a number of challenges and trends automakers will face this year.

Here are five key things to watch in 2016:

1. Used car sales will increasingly compete with new cars.

Owners who lease more than 3 million cars are poised to turn them in this year, flooding the used car market with the most inventory in any year since 2004.

Analysts for wholesale auction company Manheim say that number will continue to rise in the coming years and is expected to top more than 4 million annually by 2018

That influx of cars in good condition will increasingly compete with new car sales through certified pre-owned programs offered by automakers. The sheer volume of used cars coming into the market also will drive down prices, increasing the value from the perspective of the consumer.

What's more, millennials — the group of Americans born between 1980 and 2000 — are increasingly willing to consider buying a used car, said Brian Moody, executive editor of Auto Trader.

More than 77% of millennials are willing to consider used, or certified-pre-owned vehicles compared with just 61% of non-millenmnials, Moody said.

2. Slowing growth could spark incentive war.

The average incentive on a new car in 2015 was nearly $3,000 — the highest in more than a decade.

One of the forces driving up incentives is the slowing growth of industry sales. While economists say the U.S. economy should continue to strengthen in 2016, leading to the potential for more growth for U.S. industry sales, the pace of that growth is expected to slow down.

Kelley Blue Book, for example, expects U.S. automakers will sell between 17.5 million and 18 million new cars and trucks, or just a 3% increase at most.

That slower pace forces automakers to fight harder for a larger piece of the existing market as sales growth cools down.

"Historically speaking, we are not quite at a point where I would say there is a tremendous amount of unhealthily behavior, but certainly the risk is there," said Alec Gutierrez, senior analyst for Kelley Blue Book.

3. Deeper relationships with Silicon Valley to emerge.

Automakers are increasingly viewing technology companies as partners rather than as competition, and that could be good for both industries.

Last week, General Motors said it will invest $500 million in Lyft and laid out plans to develop an on-demand network of self-driving cars with the ride-sharing service.

Fiat Chrysler Automobiles, Ford and Toyota all recently announced plans to introduce Apple CarPlay and Android Auto into their cars as infotainment options.

"I think GM’s announcement in Lyft is an indication they understand that change is coming," said Rebecca Lindland, senior director of commercial insights for Kelley Blue Book. "I think we see that with the work that Ford is doing in Silicon Valley and the investment that GM made show that the industry sees Silicon Valley as partners rather than as a threat."

4. Continued rise of SUVs and crossovers.

Americans still love their pickups and big vehicles and that's isn't going to change, especially if gas prices continue to hover around $2 per gallon.

"Consumers want the most fuel-efficient version of the vehicle that they already want to buy. Not the most fuel-efficient vehicle," Lindland said.

In 2015, compact crossovers and SUVs accounted for 14% of new car sales, edging out mid-sized sedans, which accounted for 13.6% of the market.

The good news for the industry and for consumers is that today's SUVs and crossovers get far better fuel economy today than 10 years ago, and the Detroit Three are better positioned to deal with a gas price spike, if one occurs, than in the past.

5. Volkswagen remains in cross-hairs.

Volkswagen's position in the U.S. is in question as the German automaker continues to face global scrutiny for the fact that it rigged 600,000 Volkswagen and Audi diesel cars in the U.S. to beat emissions tests.

Earlier this month, the Justice Department filed a civil complaint against Volkswagen, alleging the vehicles violated emissions laws in violation of the Clean Air Act.

As a result, the automaker's U.S. sales have been sliding since the allegations emerged in September. Volkswagen's U.S. sales fell 3.4% in December as industry sales rose 9%.

While Volkswagen executives have apologized many times, the firm has yet to announce a plan to fix the cars owned by the customers and has a lot of work to do to overcome damage to its public perception.