U.S. car sales surge as recovery gains steam

Tue Apr 3, 2012 10:47pm IST

Workers place tires on the 2011 Ford Explorer and other vehicles at the Ford assembly plant in Chicago, Illinois, December 1, 2010. REUTERS/Frank Polich/Files

Workers place tires on the 2011 Ford Explorer and other vehicles at the Ford assembly plant in Chicago, Illinois, December 1, 2010.

Credit: Reuters/Frank Polich/Files

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(Reuters) - U.S. auto sales rose more than 15 percent in March, preliminary data showed, as rising consumer confidence and cheap financing quickened the pace of a sluggish recovery more than two years in the making.

The strong March sales rounded out the best quarter for U.S. vehicle sales since 2008 and raised the prospect that major automakers would have to scramble to boost production and lift cautious full-year sales forecasts.

Auto executives and analysts said March sales of cars and trucks were lifted by the same factors that have driven the recovery since the middle of 2011. Those include the need for consumers to replace aging clunkers as gasoline prices rise, and improved consumer confidence in the wake of a stabilizing job market.

"People are going back to work," said Ford Motor Co (F.N) economist Ellen Hughes-Cromwick. "And the vehicle stock ... is ripe for replacement."

The average age of vehicles on U.S. roads has risen to near 11 years, the highest on record. Many of those vehicles are SUVs that were sold in the late 1990s. Rising fuel prices, combined with lower interest rates, have drawn consumers into showrooms to seek more fuel-efficient replacements.

As sales rise, automakers are also getting more profit per vehicle. Incentives, including rebates, continued to trend downward in March while the average transaction price for a new vehicle rose 7 percent to just under $31,000, a new record high, autos consultant TrueCar.com said.

General Motors Co (GM.N), the top U.S. automaker, posted a 12 percent gain in March sales, which failed to keep pace with the overall market, sending its shares down 3.8 percent to $25.75 in early afternoon. Ford shares were unchanged at $12.62.

BRIGHT SPOT

Auto sales are watched as one of the earliest snapshots of American consumer demand. In recent months the sales figures have proven a bright spot in an economy that is expanding at only a modest pace of about 2 to 2.5 percent this quarter.

Flat wages after adjusting for inflation, a high unemployment rate at 8.3 percent and large debt loads have restrained consumer spending. But the combination of ultra-cheap auto financing and the high average age of cars on the road, which are now starting to wear out, has attracted more buyers onto the car lots.

Consumer confidence rose in March to its highest level since February 2011, the Thomson Reuters/University of Michigan reading of consumer sentiment showed.

The March U.S. auto sales results were strong enough to force some industry sales forecasts higher for 2012.

Mike Jackson, chief executive of the largest auto retailer, AutoNation Corp (AN.N), told CNBC on Monday that his company had raised its 2012 sales forecast to about 14.5 million vehicles from 14 million.

Volkswagen AG (VOWG_p.DE) raised its full-year industry U.S. sales forecast to 14 million light vehicles, from 13.7 million, said its North American president, Jonathan Browning.

"We do expect the selling rate to ease a little in the second half of the year, but 14 million is our forecast now for the year," Browning said.

Ford's U.S. sales rose 5 percent from a year earlier. Ford, No. 2 in the U.S. market, reported its best March for new auto sales in five years on strong sales of small cars including its Focus sedan and also its F-Series pickup trucks.

Toyota Motor Corp (7203.T), No. 3 in U.S. sales, saw a 15 percent rise in March sales.

Chrysler Group LLC (FIA.MI), the fourth-biggest automaker in the U.S. market, reported a 34 percent increase.

Nissan Motor Co (7201.T) said its sales in March rose 12.5 percent, and Volkswagen said March sales soared by 35 percent - its the best U.S. March sales since 1973.

Hyundai Motor Co (005380.KS), which has the best fleet-wide fuel economy ratings in the market, said it expected to have record monthly sales. It had not yet reported March sales as of early Tuesday afternoon.

Auto analysts surveyed by Thomson Reuters had forecast an annualized sales rate for March of 14.74 million vehicles. That would mark an increase from last March's 13.1 million sales rate.

GM's stock price had risen by 27 percent so far this year, before Tuesday's downturn.

"The lower-than-expected March sales triggered a quick reaction from investors," said Michelle Krebs, analyst for Edmunds.com.

Krebs said sales for GM's Buick brand were disappointing despite heavy advertising. Buick sales fell 16 percent in March.

(Reporting By Bernie Woodall and David Bailey; Editing by Maureen Bavdek and Matthew Lewis)

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