U.S. auto sales will likely reach a 14.2 million seasonally adjusted annual sales rate in May 2012, the greatest year-over-year gain in more than 12 months, as consumers take advantage of credit and low interest rates to replace aging cars and boost the nation's GDP, Kelley Blue Book (KBB) said Wednesday.
Car sales continued to rise in May after several months of growth. Consumers bought almost 1.4 million new vehicles in May, which boosted the seasonally adjusted annual sales rate to 14.2 million by KBB estimates. On an unadjusted basis, May 2012 sales are projected to be 30 percent higher year-over-year, and 20 percent higher when adjusted for extra selling days and the memorial day weekend, KBB said.
Car sales have been a bright spot in a generally sluggish U.S. economic recovery, according to Alex Gutierrez, senior market analyst for automotive insights at KBB. Car sales made up half of the 2.2 percent increase in first quarter GDP growth, emphasizing that U.S. economic growth has been driven primarily by gains in the automotive industry. Normally, increased car sales follow improvements in the economy and GDP growth, rather than causing it.
At this point, it is almost as if the tail is wagging the dog. During a typical post-recession recovery, we would expect to see auto sector gains being driven by broad economic growth. In the first quarter, the opposite was true, as auto sales were the primary driver behind GDP growth, Gutierrez said Wednesday.
Sales last May were hurt by inventory shortages for Japanese manufacturers like Toyota Motor Corporation (NYSE: TM) and Honda Motor Company Ltd. (NYSE: HMC), but inventory levels this year have recovered. Last year, Honda and Toyota sales were down 3.7 percent. Higher inventories for the manufacturers this year are expected to be especially helpful on Memorial Day sales events.
With inventory shortfalls no longer a concern, budget-conscious consumers will look to incentives and advertised sales events to help narrow their purchase decisions, Gutierrez said.
The boost in inventory will be particularly beneficial for Toyota which KBB predicts will surpass Dearborn, Mich.-based Ford Motor Company (NYSE: F) as the nation's second largest car company by market share. In May Toyota City-based Toyota reached 15.3 percent market share, compared to Ford's 15.2 percent. Ford is expected to recover later in the year on the strength of new Escape and Fusion models.
Detroit-based Chrysler Group LLC, a subsidiary of Italian Fiat Group S.p.A. (ETR: FIAT) is expected to grow sales by an adjusted 30 percent year-over-year on strong incentives programs and new products.
Since being acquired by Fiat, Chrysler has performed a remarkable turnaround that largely has been product driven, Gutierrez said. The Chrysler 200 and 300 cars and the Jeep Grand Cherokee and Dodge Durango in particular have boosted Chrysler's market share 5 percent to 15.3 percent. Market share for the company is expected to continue growing later in the year with the introduction of the new Dodge Dart.
Detroit's General Motors Company, (NYSE: GM) lost 3 percent of market share in May. Market share for the nation's largest car company fell to 17.8 percent, despite almost 11 percent growth in sales volume.