Auto worker Brenda Hedland takes a picture of a Chevrolet Cruze coming off… (Amy Sancetta / Associated…)
Consumers, tripped up by confusing economic signals, pulled back on auto purchases in May.
A confounding set of circumstances, including rising prices, a gas price spike and inventory shortages combined to plague auto sales, said Jeff Schuster, an analyst at J.D. Power & Associates.
"They looked at this trifecta of variables that are playing against buying a car right now and put their decision on hold," Schuster said.
Ford Motor Co., for example, has raised prices three times since January, including in mid-May. Year to date, the automaker said, its sticker prices were up 1.3%, or $375, on average.
"The pricing in the market place is a function of what customers are willing to pay for a particular model," said George Pipas, the sales analyst at Ford. "There is nothing in our plan that says our primary goal is to raise prices."
Automakers sold about 1.1 million vehicles in May, 3.7% less than a year earlier and 8.3% less than the previous month, according to Autodata Corp. The annual sales pace was 11.8 million vehicles, off from the 13-million rate set in previous months this year.
"The consumer was sitting back and trying to decide if the short term was really the time to buy and waiting to see what was going to happen," said Don Johnson, General Motor Co.'s U.S. sales chief.
GM expects that some of that "uncertainty in the consumer's mind will continue into June."
The industry is "seeing some hesitation on the part of consumers," said Jonathan Browning, chief executive of Volkswagen of America. "This is a short dip, and we are confident" that sales "will come back as we move through the second half of this year."
Volkswagen looked to be one of the exceptions to the May slowdown. VW said its sales, including its Audi division, rose 24% to 40,805 vehicles for the month. It was the VW brand's best month since August 2003. Kia Motors America also gained from the problems at the Japanese automakers. Sales for the U.S. unit of Kia Motors Corp. of South Korea soared a torrid 53.4% to 48,212 vehicles. Chrysler Group also posted a gain, with sales rising 10.1% to 115,363 vehicles.
But Toyota Motor Corp.'s sales fell 33.4% to 108,387 vehicles in May as the company struggled with earthquake-related supply problems.
American Honda Motor Co. reported May sales of 90,773, a 22.5% decrease.
"May sales are on par with what we expected due to the lingering effects of parts and production shortages resulting from the devastating March 11 earthquake in Japan," said John Mendel, executive vice president of sales for American Honda. "We are confident that sales will rebound as our North American plants reach 100% production capacity for most models in August."
Nissan North America Inc. reported that its May sales fell 9.1% to 76,148 vehicles, as it too was affected by the quake.
GM said its U.S. sales fell 1% to 221,192 in May compared with the same month a year earlier. The automaker blamed much of the drop on a decline in fleet sales. Purchases by retail customers rose 9%.
GM gained market share even though its overall sales fell. Part of GM's retail gain was capturing share from Japanese competitors, Johnson said.
Ford sales fell less than 1% to 191,529 vehicles in May. Car sales were up almost 9%, but truck sales fell 11% compared with May 2010.
The hot-selling autos in May were smaller, fuel-efficient vehicles such as the Ford Focus and the Chevrolet Cruze, a trend that has dominated the industry this year as shoppers react to gas prices that are higher than a year earlier.
"The whole trend of consumers looking for fuel economy continues to rise," Johnson said.
On example is that the special Eco edition of Chevrolet's new Cruze sedan accounted for about 15% of Cruze sales last month. The vehicle's fuel economy averages 42 miles per gallon in highway driving.
Through the first five months of this year, compact cars and compact crossovers accounted for about 31% of the industry's U.S. sales compared with about 28% in the first two quarters of 2010, Johnson said.
Most automakers took advantage of the large reductions in sales incentives by Toyota and Honda to raise their own prices, said Brian Johnson, an analyst with Barclays Capital.
The big Japanese name brands reduced their discounts as their inventories shrank because of parts shortages and production issues resulting from the March earthquake and tsunami.
The top three Japanese automakers slashed their U.S. incentives by $825 from April to May, according to J.D. Power. The average transaction price for their vehicles rose $1,364. Meanwhile, the incentives offered by the Detroit automakers fell $190 on average, and average transaction prices also fell, by about $237, Power said.
Johnson of Barclays and other analysts had similar estimates for the Japanese manufacturers but calculated that average transaction prices for the domestic brands rose as much as $300 last month.
"Average transaction prices reached their highest levels ever recorded," said Jesse Toprak, an analyst at TrueCar.com. He said even though consumers continued to move toward smaller vehicles in May, they were buying vehicles packed with options, keeping transaction prices high.
But that could change in the coming months.
After cutting back in May, Toyota said it will now ramp up incentives as its production recovers. Its U.S. factories were operating at 30% of normal levels in May but will move up to 70% this month.