By Dudley Althaus 

MEXICO CITY--Easier credit, dealer promotions and a sharp cutback in imports of used cars from the U.S. are causing a rebound in Mexico's domestic auto sales, which along with strong export demand, is contributing to record production, industry officials said Monday.

Sales of cars and light trucks rose 27% in the first half of the year compared with the same period in 2014, the Mexican Association of Automotive Distributors reported, accelerating the climb that began a year ago.

The recovery of the domestic market is tracking the record-setting growth of Mexico's auto manufacturing industry, which exports four-fifths of the vehicles produced, mostly to the U.S. Local assembly plants pumped out a record 1.7 million light vehicles in the first half of this year, an 8% increase over the same period in 2014, according to the Mexican Automotive Industry Association.

While promotions have kept local auto prices in check, the most important boost has come from the dramatic reduction in imports of used cars from the U.S., said Guillermo Rosales, executive director of the distributors association.

Under pressure from dealerships and manufacturers, the government tightened restrictions on used-car imports, cutting the number of vehicles brought in across the border by around 70% to 64,000 through May of this year, compared with 228,000 in the first five months of 2014.

"We see this as the result of a long struggle," Mr. Rosales said. "We trust the federal government will continue taking the lead on this."

More than 7.3 million used U.S. vehicles have been imported into Mexico since regulations were relaxed in 2005. Although Mr. Rosales says most of those imports have remained in Mexico's northern border states, he and others have long argued that the imports have depressed the domestic market for new and used autos.

Compact and sub-compact cars made up more than 60% of the nearly 610,000 new vehicles sold across Mexico through June. About half the vehicles were bought on credit, mostly with financing offered by manufacturers or specialized lenders. Mexican banks make relatively few auto loans, Mr. Rosales said.

Mexico's domestic auto market slumped badly with the 2008 financial crisis, with sales only recovering to pre-crisis levels of more than one million autos annually in 2013.

The North American Free Trade Agreement remains the main anchor for the Mexican auto industry, which now accounts for about a quarter of Mexico's total exports, said AMIA president Eduardo SolĂ­s.

Nearly 71% of the 1.4 million vehicles exported between January and June were shipped to U.S. dealerships, and almost 11% more were sent to Canada, he said. Germany, the third largest foreign market, took less than 4% of the vehicles shipped so far this year.

Vehicles assembled in Mexico are gaining U.S. market share, with nearly one in every eight vehicles sold there manufactured in Mexico.

Both production and exports are expected to continue increasing as new plants of foreign auto makers either ramp up or start production. New plants of Honda Motor Co., Mazda Motor Corp. and Nissan Motor Co. have come on line since late 2013. Audi AG, Daimler AG, BMW AG, KIA Motors Corp. and Toyota Motor Corp. factories are scheduled to start production here in the next few years. General Motors Co. and Ford Motor Co. have announced multibillion dollar expansions to assembly and engine plants as well.

Write to Dudley Althaus at Dudley.Althaus@wsj.com