May 30, 2013 / 8:50 PM / 7 years ago

U.S. May auto sales seen shaking off disappointing April

DETROIT (Reuters) - The U.S. auto industry is expected to report sales growth of more than 6 percent in May, shaking off disappointing results in the previous month as consumers still headed to dealer lots to buy new cars and trucks.

The General Motors logo is seen outside its headquarters at the Renaissance Center in Detroit, Michigan in this file photograph taken August 25, 2009. REUTERS/Jeff Kowalsky/Files

Rising consumer spending and a recovering housing market have buoyed demand for autos even as aging cars and trucks have forced many Americans into the market for replacement vehicles, analysts and industry executives said. Analysts polled by Thomson Reuters expect an annual sales rate in May of 15.1 million vehicles.

That would be a welcome rebound from April when the rate disappointed, coming in at 14.9 million vehicles due to lackluster results from some foreign automakers and weaker sales to commercial customers. The annual sales rate had topped 15 million each month since November before falling short in April.

“I’m less concerned about April being indicative of any sort of downturn,” Gabelli & Co auto analyst Brian Sponheimer said. “There’s still a great deal of pent-up demand that needs to work its way through the system. On the whole, we’re still looking at another two years of outperformance for the auto industry as it relates to the broader economy.”

Auto sales each month are an early indicator of economic health. The industry is in the midst of its fourth year of recovery from an economic downturn that pushed General Motors Co (GM.N) and Chrysler into bankruptcy in 2009.

On Wednesday, Ford executives said May was looking good and predicted the industry’s annual sales rate would finish at about 15.2 million vehicles.

Automakers are scheduled to report May sales on Monday.

Strong dealer showroom traffic has the industry expecting overall sales reaching as much as 15.5 million vehicles this year, up from 14.5 million last year.

“We are tracking better than we have in any of the previous four months,” said Steve Hurley, owner of Stingray Chevrolet outside Tampa, Florida.

In a recent research note, Morgan Stanley analyst Adam Jonas related how his uncle, a dealer in Canton, Ohio, said May started off slowly but that the store was “on fire” late in the month. Jonas said the timing of U.S. Memorial Day weekend, which fell earlier in the month than usual, also likely helped. He expects the industry’s sales rate for May to finish at 15.3 million vehicles.

Pushing consumers to buy new cars and trucks is the historic average age of vehicles on the road, which now tops 11 years.

As the housing market has improved, demand for pickup trucks, which generate lucrative profit, has picked up. That especially benefits the U.S. automakers.

GM is expected to continue shrinking its inventory of big trucks as it makes room for its redesigned versions of the Chevrolet Silverado and GMC Sierra, which go on sale next month.

GM’s market share in May is expected to slide to 17.6 percent from 18.4 percent last year, according to industry research firm Ford Motor Co’s (F.N) share is seen rising a full point to 17.2 percent and Chrysler Group’s FIA.MI by three-tenths of a point to 11.5 percent.

Also helping industry profit is the decline in incentives for consumers and the ability of automakers to push through higher prices.

Industry research firm estimated incentive spending by the industry in May fell 3 percent from last year to $2,482 per vehicle. J.D. Power and Associates said the strong pickup demand has helped keep industry average transaction prices at record levels approaching $29,000 per vehicle, which would be the strongest-ever performance for the month of May.

“Companies are terrified to discount,” Morgan Stanley’s Jonas said. “The Japanese are terrified to discount because they would be accused of predatory behavior with the yen and the U.S. automakers are terrified to discount because their share price will get whacked.”

A weak yen gives Japanese automakers like Toyota Motor Corp (7203.T) more room to offer richer incentives and lower prices. However, analysts said Japanese rivals are more likely to make entertainment and navigation features more widely available on their vehicles than cut prices.

Additional reporting by Deepa Seetharaman in Dearborn, Michigan; editing by Matthew Lewis

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