March auto sales up 13 percent, recovery quickens

Tue Apr 3, 2012 7:13pm EDT

1 of 10. A row of Ford Focus (bottom) are displayed next to Ford F-Series pickups at Koons Ford in Silver Spring, Maryland April 3, 2012. U.S. auto sales rose more than 15 percent in March, preliminary data showed, as rising consumer confidence and cheap financing quickened the pace of a sluggish recovery more than two years in the making.

Credit: Reuters/Gary Cameron

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(Reuters) - Auto sales rose about 13 percent in March as consumers energized by an improving job market replaced aging vehicles and took advantage of cheap financing.

The strong March sales rounded out the best quarter for U.S. vehicle sales since 2008 and raised the prospect that major automakers would have to scramble to boost production and lift cautious full-year sales forecasts.

The auto industry has been in a slow, sporadic recovery for the past two years, and the March data suggested the pace of the recovery is gathering steam.

One analyst said March was a "litmus test" for the year after a strong January and an even stronger February.

"The fact that the (sales rate) is strong shows real strength on the retail side," said Jessica Caldwell, a senior analyst at Edmunds.com. "Moving forward, if we can continue to see these signs of pent-up demand, I think that will bode well for 2012 and beyond."

Chrysler Group LLC posted a 34 percent U.S. sales increase over the previous March, while sales at General Motors Co and Ford Motor Co rose by 12 percent and 5 percent, respectively. Toyota Motor Corp had a 15 percent gain and Volkswagen AG's sales were up by 35 percent.

Honda Motor Co experienced a sales slide of 5 percent, which the Japanese automaker pegged to exceptionally strong U.S. sales the previous March.

Industry experts said sales of cars and trucks last month were lifted by the same factors that have driven the industry's recovery since mid-2011: the need for consumers to replace aging clunkers as gasoline prices rise, and improved consumer confidence in the wake of a stabilizing job market.

"People are going back to work," said Ford Motor Co economist Ellen Hughes-Cromwick. "And the vehicle stock ... is ripe for replacement."

The average age of vehicles on U.S. roads has risen to near 11 years, the highest on record. Many of those vehicles are SUVs that were sold in the late 1990s. Rising fuel prices, combined with lower interest rates, have drawn consumers into showrooms to seek more fuel-efficient replacements.

The pace of the recovery from the industry's low point in 2009 was slowed last year by the March earthquake and tsunami in Japan. By the fourth quarter, sales at about 13.5 million vehicles an annualized basis was the best three-month period since pre-recession 2008.

While first-quarter sales showed a quickening pace of the industry rebound, March sales of 14.4 million vehicles on an annualized basis missed analyst expectations of 14.7 million vehicles.

Executives at Ford and Nissan both said that the availability of more fuel-efficient vehicles is helping entice customers to buy both larger vehicles and small cars.

"People are doing the math" and "don't want to get 12 miles per gallon" with an older car or truck, so they are buying more fuel-efficient SUVs and trucks, said Mark Fields, president of Ford Americas.

"There are people in less fuel-efficient vehicles and they look at these gas prices" and head for showrooms, said Al Castignetti, head of the Nissan brand in North America.

Don Johnson, GM sales chief, said he expected pent-up demand to remain a supporting factor for U.S. auto sales "well into 2013."

RECOVERY

As sales rise, automakers are also getting more profit per vehicle. Incentives, including rebates, continued to trend downward in March while the average transaction price for a new vehicle rose 7 percent to just under $31,000, a new record high, autos consultant TrueCar.com said.

The U.S. stock market is also near four-year highs, although major indexes fell on Tuesday.

Despite the solid month, GM's 12 percent U.S. sales gain in March failed to meet analysts' expectations or keep pace with the overall auto market.

GM shares ended 4.6 percent lower at $25.54 on the New York Stock Exchange on Tuesday. Ford shares edged up 0.2 percent to close at $12.64. The broad S&P 500 Index was down 0.4 percent on the day.

Auto sales are watched as one of the earliest snapshots of American consumer demand. In recent months the sales figures have proven a bright spot in an economy that is expanding at only a modest pace of about 2 to 2.5 percent this quarter.

Flat wages after adjusting for inflation, a high unemployment rate at 8.3 percent and large debt loads have restrained consumer spending. But the combination of ultra-cheap auto financing and the high average age of cars on the road, which are now starting to wear out, has attracted more buyers onto the car lots.

Consumer confidence rose in March to its highest level since February 2011, the Thomson Reuters/University of Michigan reading of consumer sentiment showed.

RAISED FORECASTS

The March U.S. auto sales results were strong enough to force some industry sales forecasts higher for 2012.

Mike Jackson, chief executive of the largest auto retailer, AutoNation Corp, told CNBC on Tuesday that his company had raised its 2012 sales forecast to about 14.5 million vehicles from 14 million.

Volkswagen raised its full-year industry U.S. sales forecast to 14 million light vehicles, from 13.7 million, said its North American president, Jonathan Browning.

"We do expect the selling rate to ease a little in the second half of the year, but 14 million is our forecast now for the year," Browning said.

Ford, No. 2 in the U.S. market, reported its best March for new auto sales in five years on strong sales of small cars including its Focus sedan and also its F-Series pickup trucks.

Nissan Motor Co said its sales in March rose 12.5 percent, and Volkswagen said March sales soared by 35 percent - it's the best U.S. March sales since 1973.

Hyundai Motor Co, which has the best fleet-wide fuel economy ratings in the market, said its March sales rose 13 percent, and it sold more vehicles in the U.S. market than any previous month.

GM's stock price had risen by 27 percent so far this year, before Tuesday's downturn.

"The lower-than-expected March sales triggered a quick reaction from investors," said Michelle Krebs, analyst for Edmunds.com.

Krebs said sales for GM's Buick brand were disappointing despite heavy advertising. Buick sales fell 16 percent in March.

(Reporting By Bernie Woodall and David Bailey; Editing by Maureen Bavdek and Matthew Lewis)

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Comments (11)
SayHey wrote:
Not surprising – bought Chrysler 300 Ltd few months ago – a lot of car for the money – very favorably compares to Cadillac CTS, Lincoln MKZ or Acura TL.

Apr 03, 2012 8:48am EDT  --  Report as abuse
ZBan wrote:
I believe the world will see a many fold increase in car unit sales in the next two decades. Many will trumpet the news favorably, but in reality, it will be due to a process of moving towards the disposable car industry, and it will have a profound effect on the western economy, and on global sustainability.

http://zoltansustainableecon.blogspot.com/2012/04/disposable-cars.html

Apr 03, 2012 9:05am EDT  --  Report as abuse
USAPragmatist wrote:
Dam that Obama, the TARP was all for the banks what was he thinking letting Chysler and GM get some loans out of it? That money should have gone into bankers pockets, not helping the American auto industry restructure when no one else was going to give them loans. Obama does not care about America, he should know that it all about the bankers and making money without providing a product.

Apr 03, 2012 10:51am EDT  --  Report as abuse
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