Traverse City Record-Eagle

Business

July 4, 2012

Car sales soar despite economy

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DETROIT (AP) — From mini cars to monster pickups, sales of new cars and trucks surged in June and eased concerns that Americans would be turned off by slower hiring and other scary headlines.

Automakers sold nearly 1.3 million cars and trucks in June, up 22 percent from the same month last year. Chrysler posted its best June in five years. Sales soared at Volkswagen, which is on track for its best year in the U.S. since 1973.

The results allayed fears that growth would stall after a strong start to 2012. Earlier this spring, sales were on track to reach 14.5 million this year, boosted by mild weather and the post-earthquake return of Japanese cars to dealers. But the pace dropped to 13.8 million in May, as the stock market plunged and hiring slowed. In June, there was more bad news about jobs growth, and consumer confidence fell for the fourth straight month.

But buyers didn't go away. June's sales pace rose to 14.1 million, according to Autodata Corp. And if sales stay at that rate for all of 2012, it will be the industry's best year since 2007.

Falling gas prices, cheaper loans and new models like the Ford Escape and Dodge Dart drew buyers. A revived housing market lifted sales of pickups. And there was still plenty of demand from people who bought cars in the middle of the last decade and needed to replace them. Annual sales hit a high of 17 million in 2005, and those cars and trucks are now seven years old.

"If a family in Iowa's only mode of transportation is on the fritz, they are going to buy a replacement vehicle, even if Spain's economy is on the brink of collapse," says Alec Gutierrez, a senior market analyst at Kelley Blue Book.

Automakers also started their Independence Day promotions a little early and that juiced sales at the end of the month.

"In the last two weeks we really went all-out," says Bill Underriner, who sells Volvo, Buick, Honda and Hyundai cars in Billings, Mont.

Colorful ads with holiday deals excited buyers, says Jessica Caldwell, a senior analyst with pricing site Edmunds.com. The Buick Verano small car — one of Underriner's big sellers last month — is now $239 per month for a two-year lease. That's $50 less than usual.

Low interest rates are making deals like the Verano's more attractive. The average interest rate on a 60-month new-car loan is 4.5 percent, down from 6.98 percent two years ago, according to Bankrate.com. Credit availability is also improving.

"The affordability of cars is probably at an all-time high," Chrysler Group sales chief Reid Bigland said last week.

Falling gas prices meant buyers were more likely to consider bigger cars and SUVs in June, not just the small cars that sold well at the beginning of the year. Jeep Liberty SUV sales rose 50 percent and the Ford Explorer jumped 35 percent. Gas averaged $3.43 per gallon at the end of June, down 41 cents from the end of March.

Pickup truck sales also improved as home building perked up. Chrysler's Ram pickup sales rose 12 percent and sales of the Ford F-Series — which has long been the country's best-selling vehicle — rose 11 percent.

At Chrysler, sales of the tiny Fiat 500 and Chrysler 300 large sedan more than doubled from a year earlier, helping the company to a 20-percent gain for the month.

General Motors' sales rose 16 percent, with strong demand for the Chevy Malibu midsize sedan and Volt electric car.

Ford's overall sales rose 7 percent. The Escape small SUV posted its best month ever after a new version of the popular vehicle went on sale.

The sales were welcome news to investors, who have beaten down GM and Ford shares in recent days over losses in Europe. Ford's stock climbed 2 percent to close at $9.60, while GM's stock jumped 6 percent to $20.67.

Toyota's sales rose 60 percent for the month while Honda's climbed 49 percent, but that wasn't surprising. Last year, both companies had little inventory at U.S. dealerships because of the earthquake in Japan. Now, they're taking back sales that their rivals gained last year. The Chevrolet Cruze, for example, was the top-selling car in the country June 2011, but its sales dropped 24 percent last month. Sales of its Japanese rivals, the Honda Civic and Toyota Corolla, jumped more than 40 percent each.

Sales would have been slower if carmakers hadn't sold so many vehicles to government, commercial and daily rental fleets, says Jesse Toprak, vice president of market intelligence for the car buying site TrueCar.com. A little more than a third of all the cars GM sold went to fleets, up substantially from last year. Ford also sold a third of its vehicles to fleets, but that was about the same percentage as last year.

GM said that was just the way some sales were timed, and its fleet sales should fall this month.

Toprak thinks that even if sales soften a little, they're still on track to reach 14.4 million by the end of the year. That's better than last year's 12.8 million, and it's far better than the 30-year low of 10.4 million during the recession in 2009.

"This is a healthy and sustainable rate of recovery," he said.

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