U.S. Auto Sales Up In March; Oil Prices, Japan Still Have Affect

By Ben Klayman

DETROIT (Reuters) - U.S. auto sales in March are expected to rise about 12 percent from last year's depressed levels, but high gasoline prices and production problems caused by the Japanese earthquake could slow a recovery, analysts and investors said.

Auto sales represent one of the first snapshots every month of U.S. consumer demand, and while an increase from last year is expected, lower incentives will likely mean a decline from February. However, that does not scare investors who like the industry's recovery story.

"Gas prices and disruptions with the Japanese earthquake are relevant, we pay attention to them, but it doesn't change the medium- or longer-term backdrop of there being some compelling fundamentals for new-car sales," said Walter Stackow, a senior research analyst with Manning & Napier.

Stackow, whose firm owns shares in BMW (BMWG.DE: Quote, Profile, Research, Stock Buzz), Suzuki (7269.T: Quote, Profile, Research, Stock Buzz) and several dealers, cited the average age of cars topping 10 years, sales trailing the rate at which people scrap older vehicles, the rising cost of used cars and the improving financing market as reasons for longer-term optimism.

Automakers are set to report March auto sales on Friday.

March is traditionally a stronger sales month than February, but lower incentive spending by General Motors Co (GM.N: Quote, Profile, Research, Stock Buzz), Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) and others likely resulted in a lower growth rate than February's stronger-than-expected 27 percent gain, analysts said.

For the sixth consecutive month, sales on an annualized basis are expected to top 12 million vehicles in March.

The average forecast of 34 economists surveyed by Reuters was 13.2 million vehicles on that basis, up from 11.78 million last year, but off slightly from 13.4 million in February.

J.D. Power and Associates expects a 9 percent increase in March sales, while TrueCar.com and Edmunds.com estimate gains of 12 percent and 16 percent, respectively.

PAIN AT THE PUMP

Despite the expected sales increase, rising oil prices and the resulting pain at the pump could push consumers away from more lucrative light trucks, analysts said.

J.P. Morgan analyst Himanshu Patel estimated in a research note that each $1 increase in the U.S. retail price of gas results in a 5 percentage-point shift toward lower-margin cars for the industry.

Light truck sales, which include pickup trucks and sport utility vehicles, make up a little more than half of U.S. auto sales and account for a disproportionate share of profits at the U.S. automakers because of their higher prices.

Gas prices rose more than 3 cents to $3.60 a gallon over the last week, the Energy Department said. The average price of regular gas is 80 cents higher than a year ago as conflict in Libya and rising tensions in the Middle East have sent the cost of crude oil to above $100 a barrel.

"I don't think at these levels it's going to affect car sales," said Gary Bradshaw, a portfolio manager with Hodges Capital Management, which owns Ford shares.

"The auto recovery is still intact," he added. "I still think we'll see 13 (million) to 13-1/2 million cars sold in this country this year, but if oil (hits) $125 a barrel then all bets may be off."

Another focus is the aftermath of the Japanese earthquake and subsequent tsunami earlier this month that caused many supplier plants there to close or cope with power outages.

GM, Ford, Toyota, Honda, Nissan and other automakers have all idled plants or scheduled downtime at facilities because of the parts shortages.

Even a shortage of a specialty pigment that gives cars a glittering shine prompted Chrysler Group LLC (FIA.MI: Quote, Profile, Research, Stock Buzz) and Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) to temporarily restrict orders on vehicles in certain shades of black, red and other colors.

The parts shortages may cut global vehicle output 30 percent within six weeks in a worst-case scenario, research firm IHS Automotive said.

Most analysts do not see the shortages affecting March sales much, but if it continues, April or May sales could be hurt because there will be fewer cars on dealer lots to sell.

Deals for consumers are already drying up as TrueCar estimated the industry's average incentive spending per vehicle in March would drop 6 percent from February to $2,432, driven by declines of 17 percent and 11 percent at GM and Toyota, respectively. Edmunds sees a 9.5 percent drop.

(Reporting by Ben Klayman in Detroit; Editing by Maureen Bavdek)

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Comments

[Anna Ruiz]

03:07 AM on 03/30/2011

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[Gasgal88]

08:52 PM on 03/29/2011

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[ILibertine]

07:14 PM on 03/29/2011

Key factors that precipitated the 2008 crash seem to be rapidly aligning once more; only with even less disposable income and assets in the hands of consumers. Then oil will be on its way back to $40 along with a cash-for-dilapidated homes program to stimulate the economy.

[vippy]

06:49 PM on 03/29/2011

No jobs and cut working hours and low wages are holding back the economy, don't lie to us!  I know Home Depot and Lowe's fired their managers and hired parttimers instead.  Read today where the CEO of Home Depot gets a 5% increase on his salary.  Good going!  5% of the rich own 65% - sounds fair to me, now go blow more smoke up someone's ear!

[ardentapathy]

06:24 PM on 03/29/2011

Increased gas prices are a good thing. Demonstrating what a hindrance it is to be dependent on oil. I wonder what it will take to get Americans to invest in high-speed rail.

[vippy]

06:55 PM on 03/29/2011

The USA said "no" to the photosynthesis theory while Japan said yes.  The USA does not want you to get away from the oil and their lobbying money. Where would they get the next campaign money from?
If they had been serious about getting away from oil they would have mandated higher miles per gallon like Europe but it never occurred to people to put two and two together. Sure they always preached about saving gas but then they manufactured even bigger cars.  When Europe was getting 40 mpgs we were still stuck on 12 mpgs I remember well.  

[ILibertine]

07:02 PM on 03/29/2011

Since the increases are a result of manipulation and not supply, your comment seems to advocate speculation as good. Of course, that can flow into any number of goods and commodities so I trust you are ready and able to adjust your needs toward an amazing plethora of items in search of good things. Long-range planning is one thing; shock economics does not benefit very many at all and may, in fact, be counterproductive.