U.S. auto sales drop but rays of stability seen

By Ben Klayman and David Bailey

CHICAGO/DETROIT (Reuters) - U.S. auto sales fell nearly 34 percent in May from a year earlier, but aggressive discounting helped steady results for the battered industry, according to monthly results released on Tuesday.

Industry-wide auto sales for the month reached nearly 10 million units on an annualized basis -- a better result than most economists had expected with the industry reeling from auto bankruptcies.

Chrysler spent all of May in bankruptcy after filing for court protection on April 30, while General Motors Corp GMGMQ.PK prepared for a well-telegraphed bankruptcy filing throughout the month before initiating the process on Monday.

May represented the highest sales rate so for this year and industry executives seized on that development as early evidence that the U.S. auto market could be pulling out of its steepest slump since the early 1970s.

"One month does not a recession end, but it was definitely a step in the right direction," said Al Castignetti, general manager of Nissan in the United States.

Sales were still far below the 14.3 million unit rate for the industry in May 2008 or the 17 million units in 2005 at the height of the recent credit-fuelled boom -- a level most analysts believe is out of reach for many years.

GM aims to bring its costs down to a level that would allow it to break even at an industry-wide sales rate of 10 million vehicles as part of the bankruptcy process.

"It's hard to know what the collateral impact is of the bankruptcies right now, so this may be just a short-term event," Mirko Mikelic, a portfolio manager at Fifth Third Bank, told Reuters Television. "I wouldn't be saying this is maybe even the bottom. It just depends on what happens with the economy, the GDP and the unemployment numbers going forward."

The seasonally adjusted annual rate of auto sales is a key measure economists use to gauge U.S. economic health.

Ford Motor Co (F.N), the only American automaker to have avoided bankruptcy, had the strongest month among major automakers with a sales decline of 24 percent.

Sales for GM were off 30 percent and Chrysler CBS.UL sales dropped 47 percent.

"Clearly we're starting to see both globally and in the United States, we think, the industry starting to make a turn for the better," GM sales analyst Mike DiGiovanni told analysts and reporters on a conference call.

Sales for Japan's Toyota Motor Corp (7203.T) and Honda Motor Co (7267.T) were off 41 and 42 percent, respectively.

Rival Nissan Motor Co (7201.T), which spent more heavily on discounts, saw sales drop by only a third.

Nissan said it had seen more car shoppers in its showrooms than during any month since August of last year after running a heavily promoted sale in May that offered discounts and low-cost leases on vehicles like the Maxima.