Easier credit, new models keep US auto sales solid

June 1, 2012 - 5:26 PM

Auto Sales Chrysler

FILE - This Jan. 31, 2012 file photo shows the grill of a 2012 Chrysler 200 displayed on the showroom floor of Goss Dodge Chrysler in South Burlington, Vt. Chrysler says its U.S. sales rose 30 percent and sold more than 150,000 vehicles in May, compared with 115,000 in the same month a year ago (AP Photo/Toby Talbot, file)

DETROIT (AP) — Easier credit, hot new cars and falling gas prices kept Americans buying cars at a solid pace in May despite bad economic news.

But sales could stumble in June as people weigh troubling headlines, like Friday's report that U.S. unemployment rose for the first time in 11 months.

Car sales usually hew closely to the performance of the stock market and to consumer confidence numbers. But in May, they were strong, even though confidence was wobbly and the stock market had its worst month in two years.

"We should have had a disastrous new vehicle sales month, but consumers are still interested in the new products," said Jesse Toprak, vice president of market intelligence for the car buying site TrueCar.com. "This was an anomaly."

Toprak expects sales to slow somewhat this summer before picking up again at the end of the year as the economy improves and the presidential election ends political uncertainty.

May sales totaled 1.3 million cars and trucks, up 26 percent from the same month a year earlier. It was the best May for the industry since 2008.

Toyota led sales increases with an 87 percent rise from a year earlier, while Honda saw a 48-percent jump. In May 2011, both companies ran short of cars and trucks after the earthquake in Japan crippled their factories. But their showrooms are full again, and they're rapidly gaining back the market share that they lost to competitors such as Hyundai and GM.

Sales of the Toyota Prius hybrid tripled from a year ago, while Honda Civic sales were up 80 percent.

Chrysler reported a 30 percent increase, followed by Volkswagen at 28 percent and Nissan at 21 percent. Ford and Hyundai both saw gains of 13 percent. General Motors Co. was up 11 percent.

Among the reasons car buyers put aside worrisome economic news:

— There's pent-up demand. Consumers who held off buying new cars during the recession are reaching the point where they must replace their vehicles. The average truck on the road is a record 10.4 years old and the average car is 11.1, Ford economist Jenny Lin said. GM expects pent-up demand from the recession to boost sales into next year as long as the economy keeps growing.

— Carmakers are rolling out new models faster than ever before, and they're catching buyers' eyes. New models usually fuel demand, even in a weak economy.GM sold 7,205 new Sonic subcompacts in May, for example, a 58-percent increase over Chevrolet's old subcompact, the dull Aveo. Volkswagen's new Passat helped the company to its best May since 1973. Sales of Honda's new CR-V were up 54 percent.

— Auto financing is continuing to loosen up, even for people with questionable credit history. The required credit score for people buying cars has dropped to pre-recession levels, according to Experian Automotive. Interest rates have also fallen, from an average new-car loan rate of 4.83 percent in the first three months of 2011 to 4.56 percent in the same period this year. Loan terms are also longer, which lowers payments.

"The financing costs have just been historically low," said George Mokrzan, director of economics at Huntington National Bank in Columbus, Ohio.

Consumers have also spent the past few years paying down their debts. Lower rates and debt loads mean more and more consumers are "capable of taking on the obligation of getting a new car," Mokrzan said.

Even lower incentives didn't deter most buyers in May. Carmakers offered an average of $2,392 in incentives per vehicle, down slightly from April.

— Buyers have a bit more money to spend now that gas prices average $3.61 a gallon - 33 cents below the peak of $3.94 on April 6. Some experts say gas could fall as low as $3.40 between now and Labor Day.

Pickup truck sales were particularly strong last month. GM, Ford and Chrysler all reported sales rose more than 20 percent.

Ford says demand for trucks has followed an increase in new home construction since the start of this year. Also, many truck owners would rather buy a new, more fuel efficient truck than repair an aging one, said Ford's U.S. sales chief Ken Czubay. Eighteen percent of trucks traded in for new Fords are more than 10 years old now, he said, up from 13 to 14 percent a year earlier.

May's annualized sales pace dipped to 13.8 million cars and trucks, which is the lowest level since December, according to Autodata Corp. But it was still strong enough that the forecasting firm LMC Automotive raised its 2012 outlook to 14.5 million, up from 14.3 million.

That pace is above the dismal sales of 10.4 million in 2009. But it remains below what would be normal in a healthy economy, said Jeff Schuster, LMC's senior vice president of forecasting. The monthly pace should be between 15.5 million and 16 million based on the number of households and the country's population, Schuster said.

Schuster said sales should get closer to that number next year, when LMC is predicting sales of 15.2 million.

"As long as there isn't a shock or a further deterioration of the economy on a broader scale, I think auto sales can power through right now," he said.

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AP Economics Writer Paul Wiseman contributed from Washington.