A late month surge in sales from Chrysler dealerships that are losing their franchises as part of the automaker's bankruptcy may have driven U.S. auto sales in May to levels above those seen in recent months.

But automakers are expected to report steep sales declines from a year earlier with the U.S. economy in a tailspin, the industry reeling from Chrysler's bankruptcy on April 30 an General Motors Corp's (GM.N) bankruptcy filing on Monday.

We will probably see a little upside, a little pop, said Mirko Mikelic, an analyst at Fifth Third Bank. But other than that sales will probably be much the same as in April.

More people will probably have been looking at cars, he added. But consumers are not ready to open their wallets.

Deutsche Bank said it expected light vehicle sales to be down 36.5 percent year-over-year in a survey taken just before the Memorial Day weekend, which is seen as the start of the busy U.S. summer driving and car buying seasons.

The six largest automakers all are expected to post sales declines from a year earlier, led by a 54 percent drop at Chrysler, according to industry tracking firm Edmunds.


A late May sales surge at dealerships being eliminated may have pushed Chrysler's sales higher and the industry as well, Ford's chief sales analyst George Pipas said on Friday. That would not indicate a sustained recovery in sales, he said.

I think we won't have a true picture for some time as to what is happening with industry sales, Pipas said.

Edmunds expects GM sales to drop 36.9 percent, Ford Motor Co (F.N) 28.5 percent, Toyota Motor Corp (7203.T) 40.6 percent, Honda Motor Co Ltd (7267.T) 39.3 percent and Nissan Motor Co Ltd (7201.T) 35.1 percent.

A Reuters poll of analysts found a median expectation for U.S. auto sales to reach 9.4 million units on a seasonally adjusted annualized basis in May, a slight increase from April, but far below the 14.3 million unit rate a year earlier.

The seasonally adjusted annual rate is a key measure used by economists to gauge the health of the U.S. economy. Auto sales are also one of the earlier economic indicators.

At the height of the recent credit-fueled boom, U.S. auto sales reached 17 million units in 2005.


JP Morgan analyst Himanshu Patel said on Wednesday the result could depend on incentives offered by Chrysler dealers in the last selling weekend of the month with the seasonally adjusted annual rate possibly reaching 10 million. 

It appears Chrysler sales have improved notably versus early-month trends, as terminated Chrysler dealers try to liquidate inventory ahead of their June 9 franchise termination deadline, Patel said in a note to clients.

Ford's Pipas also said industry sales could hit the 10 million unit annualized mark, but pointed to the Chrysler dealers sales as creating distortions in the market that could continue with Chrysler and GM in bankruptcy.

GM filed for Chapter 11 bankruptcy protection on Monday.

Chrysler plans to terminate 789 U.S. dealerships from its network by June 9, or about 25 percent of the total. It is not providing financial assistance to the dealers.

Chrysler Chief Executive Bob Nardelli told the bankruptcy court on Thursday that dealerships Chrysler plans to terminate June 9 had sold 4,000 vehicles at retail and transferred 15,000 to other dealerships through Wednesday.

We are seeing a clearing out of inventories and in some cases people looking to buy Chrysler vehicles, but only at steep discounts, independent industry analyst Erich Merkle said.

GM as well plans to cut 1,600 dealers between now and October 2010 as it hives off brands that are not part of the new GM and lets long-term agreements with about 1,100 dealerships expire.

Chrysler is seeking bankruptcy court approval for the sale of most of its assets to a new company led by Italy's Fiat SpA (FIA.MI) which could come as soon as Friday.

They still have to try to find some way to entice consumers into showrooms without any product except for a couple of models that are arriving maybe next year and nothing that is arriving from Fiat for maybe 18 months, IHS Global Insight analyst Aaron Bragman said of Chrysler.