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>, Suzuki <7269.T> 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>, Toyota Motor Corp <7203.T> 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> and Ford Motor Co <F.N> 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)