On Air Now

Upcoming Shows

Program Schedule »

Listen

Listen Live Now » 590 AM Kalamazoo, MI

Weather

Current Conditions(Kalamazoo,MI 49001)

More Weather »
46° Feels Like: 46°
Wind: NNE 0 mph Past 24 hrs - Precip: 0”
Current Radar for Zip

Today

AM Showers 59°

Tonight

Clear 34°

Tomorrow

Sunny 62°

Alerts

Gas-sipping cars drive March sales gain

By Deepa Seetharaman and Ben Klayman

DETROIT (Reuters) - Sales of small cars raced ahead in March as buyers flocked to more fuel-efficient vehicles, a trend major U.S. automakers expect to persist if gasoline prices continue to rise.

In addition to gas-sipping cars, the improving U.S. job market helped most major automakers race past expectations for U.S. sales in March with the main exception being General Motors Co <GM.N>, which pulled back on its incentives.

"When I look at the overall picture, I say 'Hey, this recovery's intact. It's still going strong in the U.S.,'" said Gary Bradshaw, a portfolio manager with Hodges Capital Management, which owns Ford shares. "More people going back to work, they can afford cars."

Executives at GM and Ford motor Co <F.N>, which reported sales gains of 11.4 percent and 19 percent, respectively, added that the Japan crisis was unlikely to bite into U.S. sales in the near-term.

GM shares rose 4.4 percent to end at $32.41 on the New York Stock Exchange on Friday, while Ford stock was up 1.7 percent.

Analysts said GM's gain was larger because its stock has been more volatile and investors were relieved by the good news about the sector despite the lower-than-expected sales gain.

The strong sales, combined with the Labor Department's report on solid U.S. job growth last month, boosted hopes that consumers will have more money in their wallets and feel confident enough to buy more cars and trucks, investors said.

Auto sales, which represent one of the first snapshots every month of U.S. consumer demand, finished March up almost 17 percent.

On an annualized basis, the rate for the month was 13.11 million vehicles, up from 11.78 million last year.

That was slightly below the 13.2 million rate 34 economists polled by Reuters had expected. Results from GM and Toyota Motor Corp <7203.T> <TM.N>, two of the three largest automakers, fell beneath estimates.

The stronger-than-expected results at many automakers echoed the good news on the labor front as U.S. employment on Friday recorded a second straight month of solid gains in March and the jobless rate fell to a two-year low of 8.8 percent.

GM sales chief Don Johnson does not expect a "significant" impact from the Japan disruptions on sales at this time, while Ford said any fluctuations in manufacturing caused by last month's Japan earthquake, tsunami and resulting nuclear crisis will not upset demand.

"The developments should not derail the recovery in the U.S.," Ford senior U.S. economist Jenny Lin said.

However, a Ford executive also warned that the company's inventory of small cars has been "pinched" by the heavy demand, and other automakers are likely seeing the same thing happen.

GM and Ford executives said they expect U.S. sales this year to finish between 13 million and 13.5 million, up from 11.5 million last year. Toyota officials said they expect strong April sales.

However, some still worry that the rising gasoline prices and the uncertainty caused by events in Japan could still hurt sales in April and May.

"The recovery is fragile," Edmunds.com analyst Michelle Krebs said, adding that sales in March weakened later in the month as gasoline prices rose. "The consumer does not like uncertainty, and they had a heavy dose of it in March."

LUCRATIVE LIGHT TRUCKS LANGUISH

GM said total U.S. sales in March for its four brands rose 11.4 percent from last year to 206,621 vehicles. Including its four former brands -- Hummer, Pontiac, Saab and Saturn -- GM sales rose 9.6 percent.

Edmunds had expected a gain of 11 percent including the former brands, and TrueCar.com and JP Morgan also said the results missed expectations.

GM's incentives per vehicle on average were $600 to $800 lower last month compared with February, and the automaker would be prudent with its deals going forward, Johnson said.

Ford, Chrysler Group LLC <FIA.MI> and Nissan Motor Co Ltd <7201.T> all reported stronger-than-expected results and Ford outsold GM for only the second time since 1998.

Chrysler sales jumped 31 percent, while Nissan's rose 28.4 percent. Sales at Hyundai Motor Co <005380.KS>, Honda Motor Co Ltd <7267.T> and Daimler AG's Mercedes brand rose 32 percent, 18.9 percent and 12.6 percent, respectively.

Sales at Japan's Toyota, which has been affected heavily by the Japan crisis, fell 9.2 percent.

However, the higher gasoline prices are pushing consumers away from more lucrative light trucks.

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.

"With gasoline prices eclipsing $3.50 a gallon, consumers are placing a high priority on fuel efficiency in every size and kind of vehicle," said Ken Czubay, Ford's vice president of U.S. sales.

Last month, sales of compact and subcompact cars accounted for one-fourth of the industry's total, up from 21 percent the prior two months and 19 percent in December, Ford said.

Gasoline 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.

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

Industry executives said they are monitoring the situation closely, but have declined to speculate on its impact. GM's Johnson said the U.S. automaker has a "very good" level of vehicle inventory going into April.

Ford said it is pursuing other sources of supply for affected parts as necessary, but was able to maintain its previously announced first-quarter production plans.

However, the U.S. automaker warned that further problems in Japan in the weeks ahead could force it to reduce or idle output, including suspending output at a truck plant in Kentucky next week.

Nissan said it was shifting non-production days scheduled for later in the second and in the third quarters to April.

The Japan crisis had little effect on March U.S. sales, but the situation remained "very fluid," said Bob Carter, Toyota brand sales chief in the United States. The biggest impact will be on the Prius hybrid, he said.

However, Toyota President Akio Toyoda said the Japan crisis would hurt the automaker's earnings.

Auto sales in Japan fell by more than a third in March, marking the biggest monthly percentage decline since February 1974.

In Europe, several markets saw sales decline, but automakers shrugged off for now the possibility of Japanese parts supply problems.

Sales in Canada posted healthy gains and in Brazil rose 12 percent.

(Additional reporting by Bernie Woodall in Detroit, editing by Matthew Lewis)

Comments