Since the 2008 collapse, sales of light vehicles have been the standout for the U.S. economy. Against a backdrop of sluggish growth in wages and retail, sales of autos and light trucks have surged to a 15-year record this year.

However, not all auto-related stocks are created equal. And investors who aren’t selective may soon find themselves in the red. 

That’s because there are two critical roadblocks approaching that could derail the industry’s terrific bull run. But despite the coming headwinds, there are two auto stocks that I like going into next year.

Dual Roadblocks Coming For The Auto Industry
Many believe that sales will continue to soar, pointing to the fact that the average vehicle on the road is 11.5 years old — a record. But what is not as frequently mentioned is that the average age is creeping higher largely as a result of vehicle quality. Cars are holding up better, and new car buyers are holding onto their vehicle for an average of 77.8 months before selling them, an increase of 26 months since 2006. 

More than the age of cars on the road, much of the surge in demand for new cars can be attributed to extremely low interest rates and dealer incentives. But even that might not be able to keep sales hitting fresh records.

Despite record sales numbers — thanks to deep manufacturer discounts — shares of many of the major automakers are flat for the year. Incentive spending was up six percent in November compared to the same month last year, as manufacturers battled for consumer dollars. Volkswagen Group boosted discounts by 27% in the wake of its emissions scandal, with Fiat Chrysler and Hyundai increasing incentives by 13% over last year.

Deep discounts are great for consumers, but they cut significantly into manufacturer margins. Once these manufacturers dial back on incentives, car sales could take a hit since consumers will likely wait for the next sale or rebate before paying full price.  

Sales of cars and light trucks hit an annual pace of 18.1 million in November, the third month above 18 million. The current pace is above the previous record of 17.4 million on an annualized basis in 2000 and may not have much further to go. Research firm IHS Automotive puts peak auto sales at 18.2 million and claims the industry may have only two more years to rally at most 
 
As the industry collides with peak potential sales, another roadblock may increase costs…

The second phase of the EPA’s new vehicle fuel efficiency standards will affect model years 2017 to 2025 and could drive up the cost of production. Standards require a manufacturer’s collective fleet fuel economy to reach 54.5 MPG by 2025 from just 35.5 MPG for 2016 vehicles. The National Research Council estimates that per vehicle costs could rise between $1,181 and $1,658 to cover additional input costs. 

Two Stocks To Reach Cruising Speed For Gains
Against these dual roadblocks, I’m selling out of all but two auto industry stocks. While I may hold other auto stocks in ETFs, I’m trusting just two to provide safety and growth over the next year.

Shares of General Motors (NYSE: GM) are up just 3.2% this year but trade for an attractive 7.4 times trailing earnings. Retail sales were up 14% in November from the prior year and adjusted for two fewer selling days. GM picked up 1% of retail market share to 16.5% in the month, its eighth consecutive year-over-year increase. 

GM’s average transaction price hit a record $35,800 last month as the company shows more discount discipline than competitors. Incentive spending was 10% of the average price, down 1.2% over the last year and below the industry average of 10.5%. Earnings are expected to jump 12.7% next year to $5.40 per share on increased profitability and success in its crossover vehicle segment.

BorgWarner (NYSE: BWA) is projecting up to 12% annual sales growth through 2017 as fuel standards drive demand for its emission systems and turbocharger engines. The company’s dual-clutch transmission technology uses more than double the number of gears compared to the standard automatic transmission and can generate between 5% and 15% in fuel savings. 

BorgWarner is one of the few suppliers to benefit from higher fuel standards on its portfolio of emissions and engine components. Shares trade for 14.4 times trailing earnings which are expected to come in 14.8% higher next year to $3.42 per share.

Risks to Consider: Slowing vehicle sales growth and higher costs could hit investor sentiment industry-wide. Be ready for some weakness in even the best names around monthly sales data.

Action to Take: While many stocks in this sector have been multi-year winners, tread cautiously on as sales peak and new fuel standards threaten the space. Look for quality companies like GM with some pricing discipline and others like BorgWarner that will benefit from fuel standards.

Editor’s Note: Have you seen our list of The 10 Most Shockingly Profitable Predictions For 2016? Our previous predictions have given investors annual returns as high as 310%. And this year’s group might still be our biggest money-makers yet. To hear the full list of predictions, including how to profit from Google’s shocking new business venture, click here.