Auto Sales Surge Despite D.C. Budget Battle

Detroit punches back as strong housing spurs truck demand.

by on Mar.01, 2013

Truck sales helped lead a strong February for Detroit, spurred by a reviving housing market.

What budget crisis? Despite the ongoing battle on Capitol Hill that, for at least the moment, is expected to trigger billions in government spending cuts, the auto industry is weighing in with what appears to have been a solid February – buoyed by a recovery in another key sector of the economy.

“The housing sector has now joined auto sales in propelling the U.S. economy forward,” said Kurt McNeil, vice president of U.S. sales operations for General Motors, which reported a 7% increase, year-over-year. “More importantly, the recovery in new home construction is reinforcing the underlying improvement in auto buying conditions, especially for pickups.”

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Domestic makers GM, Ford Motor Co. and Chrysler LLC all reported solid gains for February — the smallest of the Detroit Big Three reporting its best February in five years – while Volkswagen and Toyota also reported modest sales gains. The torrid pace appears to meet or even exceed the most optimistic sales forecasts for all 2012, even before the industry enters the traditional spring buying season.

“Light vehicle sales have now been running at a mid-15 million unit annual rate since November,” added GM’s McNeil. “This sets us up well for the launches of key new products this year, including an all-new generation of Chevrolet and GMC full-size pickups and an all-new Chevrolet Impala and Cadillac CTS,” he said.

Ford Motor Company’s U.S. February sales grew 9% as Ford’s posted its best February in six years – with cars up 6%, utility vehicles up 21% and trucks like the big F-Series pickups gaining 4%.

“As more new vehicle buyers continue returning to the marketplace, our fresh new product portfolio of fuel-efficient vehicles is winning over customers,” said Ken Czubay, Ford vice president, U.S. Marketing, Sales and Service. “People are buying our all-new Fusion and Escape in record numbers, thanks to strong fuel economy and innovative new technologies.”

Despite early forecasts that the company’s sales were poised to drop for the month, Chrysler managed a 4% increase compared with sales in February 2012 as the group posted its best February sales since 2008. The maker’s Dodge, Ram Truck and Fiat brands each posted year-over-year gains. The Dodge brand’s 30% increase was the largest sales gain of any Chrysler Group brand in February.

Chrysler CEO Sergio Marchionne last month had cautioned pointed out that first-quarter volumes will likely be off from the same period in 2012 due to the company’s numerous product launches. These include the 2014 Jeep Grand Cherokee, Jeep Compass and heavy-duty Ram. The Jeep plant in Toledo, Ohio also cut production as it ended the run of the old Liberty model to convert over for the launch of the all-new Jeep Cherokee.

“In spite of a cautious ramp up of some of our most popular products which limited inventory last month, we still managed to record our strongest February sales in five years and our 35th-consecutive month of year-over-year sales growth,” said Reid Bigland, Chrysler’s director of U.S. Sales. “Looking ahead, we expect to get our inventory gaps corrected over the next 90 days resulting in additional products contributing to our growth.”

Chrysler Group finished the month with a 71-day supply of inventory, slightly higher than the industry norm – and an apparent build-up meant to offset the impact of its current production slow-down.

Detroit makers were hoping for a strong February as they attempt to recover some of the market share they collectively lost in 2012. But imports are expected to post a good month of their own. Toyota, one of the first to report in, announced a gain of 4.3% for February.

“Despite rising gas prices, severe winter storms and concerns about the federal budget, February was a good indication of the overall strength of the market,” said Bill Fay, group vice president and general manager, Toyota Division. “With the most fuel efficient full line of vehicles, Toyota is well positioned and we’re encouraged by very positive consumer reaction to our new Avalon and RAV4.”

Volkswagen reported a 2.9% increase over prior year sales during February. It was Volkswagen’s best February since 1973.

“February’s sales results and 30 consecutive months of growth reflects increasing consumer interest in our products,” Jonathan Browning, president and chief executive officer of the Volkswagen Group of America.

“There is a lot of intensity in the marketplace,” added Browning, who noted carmakers, in general, have picked up their advertising and incentives in order to set up the traditionally strong spring selling season.

While a number of other major makers have yet to weigh in, U.S. industry sales figures for February are projected at an estimated 15.5 million units Seasonally Adjusted Annual Rate or SAAR of 15.5 million units.

“Any industry over 15 million units is a strong industry,” said Browning, and would mark a big jump from the 14.5 million vehicles sold in 2012.

Last year ended with an unexpected burst in demand and despite the continuing budget debate in Washington, studies suggest consumers are largely tuning it out as “political business-as-usual,” suggested one analyst. While some auto industry leaders have cautioned that the sequester’s big cuts could slow the overall economy and car sales, in particular, the general sense is that won’t be felt immediately.

“The auto industry continues to rebound and there’s still a strong pent-up demand from consumers and businesses that have been holding off on buying a new car for years,” said Jesse Toprak, Senior Analyst for TrueCar.  “Even with the rise in gas prices, demand for new cars (appeared to reach) the highest SAAR since December 2007,” or Seasonally Adjusted Annual Rate, explained Toprak.

TrueCar estimated that rebates and other incentives rose a modest 1.8% from January to February, to an average $2,392 per vehicle. But that was still down 3.9% compared to the typical giveback a year earlier.

Meanwhile, Toprak forecast that transaction prices – what consumers actually paid for the typical vehicle in February after adding in options and subtracting discounts and other incentives — will likely be “nearing record levels” for February at an estimated $30,958.

Paul A. Eisenstein contributed to this report.

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