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Rising auto sales a bright spot among bleak reports

Easier credit, pent-up demand and dealers' incentives drove a 26% increase over last May, despite negative indicators in jobs, housing and consumer confidence.

June 01, 2012|By Ryan Faughnder, Los Angeles Times
  • Workers unload KIA vehicles in National City, Calif. Kia Motors Corp. sold 239,599 vehicles in May, up 21% from a year earlier.
Workers unload KIA vehicles in National City, Calif. Kia Motors Corp. sold… (Sam Hodgson, Bloomberg )

Despite signs of a slowing economy, automakers continued to power ahead as pent-up consumer demand, easier borrowing and better deals drove consumers back to the showrooms for new vehicles.

Industrywide sales increased nearly 26% in May to 1.3 million vehicles, pointing to a continuing recovery for the auto industry in 2012.

Sales surged even though economic indicators that normally correlate with buying vehicles, such as employment and consumer confidence, fell for the month.

"Based on what we saw in these indexes, auto sales should have been far worse," said Jesse Toprak, an analyst for Truecar. "The fact that it wasn't is an indicator of how strong consumer demand truly was."

The annualized rate grew to 13.8 million units compared with 11.7 million a year ago, according to research firm Autodata Corp. They were lower than what analysts had anticipated — the seasonal annualized rate was expected to be 14.5 million — but they remained a bright spot in the economy.

General Motors Corp., the largest automaker in the U.S., sold 245,256 vehicles in May, up 11% from a year ago. Ford sales grew 13% over last year, with 216,267 vehicles sold.

Chrysler saw a 30% jump in sales to 50,041 units, while Volkswagen sales rose 28.4% to 38,657 vehicles.

The boost in sales came amid the Labor Department's dismal monthly employment report, which said the economy added only 69,000 jobs in May.

"We do believe that, despite some fluctuations in the short-term numbers, the continuing underlying trends are very positive," said Jonathan Browning, chief executive of Volkswagen of America.

Analysts partially credited the availability of credit with the pace of sales growth. Lending standards tightened during the recession, and people who couldn't get loans were shut out of the market.

"Of all car sales in the U.S., only 15% are paid in cash," Toprak said. "So when you have a bunch of [zero interest rate] offers or attractive lease specials, you tend to get people in the door."

The average FICO credit score remains at its lowest level since the recession period, said Christopher Li, an analyst at J.D. Power & Associates. "If we saw really high scores, it would tell us that most people getting loans were people with very good credit. When FICO scores are low, that tells us we have a real mix of customers in the market."

Li added that long-term loans — those of six years or longer — remain at record levels. Such loans help reduce the monthly payments for consumers.

Car companies are also offering customers better deals leading up to summer. The auto industry overall increased incentive discounts by 3.9% in May compared with last month, according to Santa Monica-based, which tracks the auto industry.

John Mendel, American Honda's executive vice president of sales, said in a statement that the company's recovery is in high gear, "irrespective of last year's production supply problems." Honda sold 133,997 units, an increase of 47.6% compared with May 2011.

The easing of credit has cleared the road for some consumers who waited out the recession.

"People over and over are going, 'I can't wait any longer and I'm feeling pretty good [financially],' " Bob Carter, Toyota's group vice president and general manager, said in a conference call.

Toyota sold 202,973 vehicles in May, up 87% over the same month last year, as the company rebounded from the earthquake and tsunami that hammered Japanese factories and slowed production last year.

Demand for Toyota vehicles, like the Prius hybrid, was strong, in addition to the recovery from last year's natural disasters. Toyota sold 21,477 Priuses, up 186%, and Camry sales doubled.

Nissan North America reported U.S. sales totaling 91,794 vehicles, up 20.5% from May 2011.

South Korean carmaker Hyundai sold 67,019 vehicles in May, following a weak April. May sales were up 13% compared with a year ago.

But the auto industry may need more than the return of skittish consumers to sustain the recovery.

"Insofar as we believe that the economy will continue to grow slowly ... the economy has to keep growing at a positive rate for pent-up demand to be released," said Don Johnson, vice president of U.S. sales operations for General Motors.

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