U.S. Auto Sales Still Sizzling
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BERNIE WOODALL
Reuters
April 2, 2012

U.S. auto sales are expected to continue at a strong pace in March, capping the best quarter in four years for new vehicle purchases as the overall U.S. economy improved and new car buyers found easier financing.

The strong first quarter in the U.S. market could temper the impact of weak auto sales in Europe, where both General Motors Co and Ford Motor Co have lost money.

"The strong U.S. data should help support first-quarter earnings and potentially offset any greater than expected softness in Europe," RBC Capital Markets analyst Joseph Spak said in a research note.

On average, 34 analysts surveyed by Thomson Reuters expect March sales to hit an annualized pace of 14.75 million vehicles. That would be up from 13.3 million a year ago but down from 15.1 million in February.

Strong sales in March would be the most convincing evidence yet this year of a sustained recovery in the U.S. auto sector.

Analysts said unseasonably warm weather last month drew out American car shoppers. The rise in gas prices to near $4 coupled with high used car prices also prompted some consumers to buy new vehicles earlier than planned.

"The current level of gas prices will further accelerate the release of pent-up demand as consumers lean towards significantly more fuel efficient new vehicles while used prices are still strong," Morgan Stanley analyst Adam Jonas said.

Current trends make Morgan Stanley's projection of 14 million vehicle sales in the United States this year look "very conservative," Jonas said in a research note.

In 2009, auto sales fell to 10.4 million, inching up to 11.6 million in 2010 and 12.8 million in 2011. Some auto analysts are now predicting 14.5 million vehicles sold in 2012, but major automakers like GM and Ford so far are offering more conservative forecasts.

In the 10-year period ended in 2007, U.S. auto sales averaged nearly 17 million annually.

'The Sweet Spot'

Consumers who held off purchases during the economic downturn -- which led to the worst U.S. auto sales since World War II adjusted for population -- are returning to the market, said Edmunds.com analyst Jessica Caldwell.

In February, auto sales rose to their highest level in four years.

"Vehicle trade-in rates have achieved sustained highs in recent months, which suggests that consumers have decided that they've held on to their cars for too long," Caldwell said. "And with the average credit score for new car buyers at its lowest level since the first half of 2008, the market is clearly becoming a friendlier place for all buyers."

Incentive spending in March fell about 2 percent industry-wide, rising only for Chrysler, Nissan and Volkswagen, auto industry research firm TrueCar.com said. Major automakers are expected to show gains on year-ago sales, led by Chrysler Group LLC, GM and Toyota Motor Corp.

"Automakers have hit the sweet spot this month with lowered incentives and double-digit sales increases, which signifies underlying strength in consumer demand," said analyst Kristen Andersson of TrueCar.com.

Truck sales continue to improve, but the improvements in car sales are relatively stronger, reflecting increased appetite for smaller, more fuel efficient models, analysts said.

Barclays Capital, which forecast a March annualized selling rate of 14.5 million vehicles, said that it expected passenger cars to represent 53 percent of overall sales, with pickup trucks and SUVs at 47 percent. That compares to 51 percent for trucks and SUVs in 2011 and 49 percent for cars.

Barclays projected that Toyota would gain share, despite a 16-percent drop in incentive spending by Japanese automakers. Edmunds.com said the strong yen gave little leeway for Japanese carmakers to offer consumer enticements.

"Traditionally, higher gas prices have helped Honda/Toyota and we expect their fuel efficient lineups can help them recover lost share," Spak said.

(Additional reporting by Deepa Seetharaman)