Consumers snap up cars in May, despite fewer deals

DETROIT (AP) - Americans shrugged off fewer discounts and a scary stock market plunge last month, snapping up new automobiles and delivering another month of higher sales for carmakers.

The industry's double-digit jump in sales shows that consumers feel the economy is healthy enough for them to buy a new car or truck. It's easier to get a car loan and gas prices are holding steady. Those factors helped ease any jitters about the 8 percent drop in the stock market last month.

May marked the seventh straight month of year-over-year sales increases for the auto industry.

"Clearly we are in a recovery," said Jeff Schuster, executive director of global forecasting for J.D. Power.

The outlook for sales through the summer appears rosy - provided that the recovery continues. The financial markets need to stabilize and employers need to start hiring at a faster clip for sales to keep climbing, said Paul Ballew, a former chief economist at GM who is now at insurance firm Nationwide.

Ford Motor Co., General Motors Co. and Chrysler Group LLC saw strong sales gains over the same month last year - a bleak month for the industry as GM headed into bankruptcy and Chrysler was already there. Most Asian and European-based automakers also posted big gains.

The exception was Toyota Motor Corp. The Japanese automaker has been relying on generous discounts the last three months to keep its sales afloat following massive safety recalls that began last fall. Those incentives appeared to lose their luster in May, as sales rose just 7 percent.

Only Lexus matched the performance of rivals. The luxury brand, which heaped on unprecedented deals in May including a six-month waiver on payments, saw sales rise 31 percent.

Toyota will extend its generous incentive programs, which includes zero percent financing, to some 2011 models. Toyota said its sales didn't rise as sharply in May because rivals had more favorable year-over-year comparisons.

However, Toyota Group Vice President Bob Carter told reporters on Wednesday that the "effectiveness (of incentives) does run its course."

Consumers who visited dealerships last month saw fewer deals. The average per-vehicle spending on incentives - promotions ranging from cash-back rebates to zero-percent financing - was $2,603 per vehicle in May, down 1 percent from April and almost 12 percent in May last year, according to auto information company Edmunds.com.

Incentives are lower than in previous years because deep production cuts have left dealers with lean lots, making them less eager to cut prices, Schuster said. Incentives are likely to remain stable through the summer, he said.

"We won't see the widespread deals, which is what consumers were used to in the past," he said. "With a little effort, a little more flexibility, the deals will still be out there, they just may have to look a little harder."

Industrywide sales rose just over 19 percent in May versus last year, and 12.3 percent compared with April, to 1.1 million vehicles, according to Autodata Corp. At May's selling pace, automakers would sell 11.6 million car and trucks all year.

Detroit's automakers enjoyed brisk gains. Ford sales rose 22 percent, boosted by strong demand for the F-Series pickup and new Ford Mustang. GM sales rose 17 percent, led by a jump in sales of its four remaining brands - Chevrolet, Buick, GMC and Cadillac - as well as big orders from fleet customers, such as rental car agencies.

Chrysler enjoyed the biggest boost of the three, with sales surging 33 percent. May was the first month in more than two years that Chrysler sold more than 100,000 vehicles, helped by strong sales of its Jeep Wrangler, pickup trucks and minivans.

Ford also solidified its position as the nation's No. 2 automaker behind GM by trouncing Toyota in sales. The Dearborn, Michigan, automaker sold 196,671 vehicles, almost 34,000 more than Toyota, which had taken second place from Ford in March.

Relatively low gasoline prices helped boost sales of some big sport utility vehicles. GM reported that Chevrolet Suburban sales more than doubled. Ford's big Expedition saw an 18 percent sales jump.

Drivers won't change buying habits unless they see 20 or 30 percent gas price spikes, but those have been absent for a while, said Rebecca Lindland, autos analyst at IHS-Global Insight. At the same time, sales of big SUVs have been low for the past two years, she said.

"There is some pent-up demand for these kinds of vehicles," she said. "Consumers that need these vehicles for the size of their family, towing, going off road."

Regular gas averaged about $2.84 per gallon in May, well below the record high above $4 a gallon during the summer of 2008, and down from April this year.

The economy has a long way to go before U.S. auto sales return to the pre-recession level of more than 14 million vehicles per year, Lindland said.

"Consumer confidence keeps going back and forth, the gyrations in the stock market this last month did nothing to help with that," she said.

Still, several trends bode well for new car sales through the summer. Prices for used cars have been rising, which means consumers on the fence between a used and new car are more likely to buy new, said Paul Taylor, chief economist with the National Automobile Dealers Association.

Home prices have also started to stabilize and consumers are becoming more eager to replace their aging vehicles.

Other automakers that reported sales on Wednesday:

- Honda Motor Co.'s sales climbed 19 percent, with the Accord and Civic sedans and Pilot SUV all seeing increases of more than 30 percent.

- South Korea's Hyundai Motor Co. had its best May ever, with sales up 33 percent. The company, which grabbed sales from Toyota after that company was hit with safety recalls, said sales of the newly redesigned Sonata sedan nearly doubled. Sales of the new Tucson SUV jumped 227 percent.

- Nissan Motor Co.'s May sales rose 25 percent, on strong demand for sedans such as the Versa, Sentra and Altima.

- Subaru's sales rose 35 percent on brisk sales of the Outback wagon and Forester SUV.

- Kia Motor's sales rose 21 percent on strong demand for new models such as the Forte, Sorento and Soul.