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February auto sales seen up slightly

By Bernie Woodall

DETROIT (Reuters) - U.S. auto sales for February are expected to post a modest rise from year-earlier levels, as the industry continues its gradual recovery thanks to a rise in consumer confidence and the need to replace aging cars and trucks.

"Between surprisingly strong sales over Presidents Day weekend, optimistic economic news, and unseasonably mild weather conditions across the country, things seem to be breaking the right way for both car buyers and dealers," said Jessica Caldwell, analyst at Edmunds.com.

Automakers will post U.S. sales results for February on Thursday. Auto sales are watched as one of the earliest indicators of U.S. consumer demand and the willingness of Americans to finance big-ticket purchases.

Among the expected biggest gainers for February compared with year-ago sales levels are Chrysler Group LLC, which is majority-owned by Italy's Fiat SpA , as well as Hyundai Motor Co <005380.KS>, Ford Motor Co and Volkswagen , analysts said.

General Motors Co is expected to show a drop in sales from last February, in part because of less sales incentives.

The auto industry has been gradually emerging from a severe slump that included the 2009 bankruptcy restructurings of GM and Chrysler. The industry was selling nearly 17 million vehicles a year on average in the 10-year period ending in 2007.

U.S. auto sales last year rose to 12.8 million vehicles, a 10 percent increase over 2010.

On average, 38 analysts surveyed by Thomson Reuters expect February sales to hit an annualized pace of 14 million vehicles. That would be up from 13.3 million a year earlier. At the high end of expectations, February could represent the biggest total since April 2008, before the financial crisis that sent Detroit into a tailspin.

An annualized rate of 14 million would mean about 1.06 million vehicles in monthly sales, J.D. Power & Associates-LMC Automotive said.

If February sales on a seasonally adjusted annualized rate top 14 million as expected, it would suggest a sustained recovery to levels not seen since before the 2008-2009 industry crisis.

U.S. auto sales have not topped 14 million on an annualized basis for two consecutive months since May 2008.

January sales were 14.18 million vehicles on that basis. U.S. auto sales have benefited in recent months from consumers' need to replace aging vehicles - a chore that many had put off during the depths of the economic downturn.

The average age of vehicles on U.S. roads is nearly 11 years old, a record.

A strengthening jobs market helped lift U.S. consumer confidence to a one-year high this month, according to figures released on Tuesday. The spike in the Conference Board's monthly gauge of economic confidence, which rose more than expected to a reading of 70.8, could mean consumers will open their wallets more readily in coming months, analysts said.

The report by the Conference Board, a private business research group, showed confidence had yet to be badly hit by a rise in gasoline prices, while consumers are beginning to believe in an improving labor environment.

PAIN AT THE PUMP

Some analysts surveyed by Thomson Reuters are less bullish than Edmunds.com which is projecting an annualized sales rate of 14.4 million vehicles. Hugh Johnson of Hugh Johnson Advisors forecast February sales at 13.6 million on an annualized basis.

In January, a high number of fleet sales to rental agencies boosted sales, and there will be "some giveback from that surge," Johnson said.

Johnson said auto sales continue to expand at a slow rate, in line with the overall U.S. economy.

In February, average U.S. gasoline prices rose 30 cents per gallon to $3.73 for regular grade, which is extremely high for a winter month, according to the AAA motor club.

But analysts say that auto sales are not expected to suffer much from the high pump prices, at least not right away.

Lacey Plache, chief economist with Edmunds.com, expects gasoline prices to flatten. "The sudden shock of today is unlikely to be permanent," she said.

As such, Plache said, consumers may shift to buying more fuel-efficient and small cars. But overall sales are not expected to decline significantly as a result of gasoline prices, unless those prices are a factor in slowing economic growth. That is also seen as not likely at this point, she said.

Peter Nesvold, analyst with Jefferies & Company, said he will be monitoring the mix of pickup trucks to passenger cars as a sign of overall industry health. Truck sales slipped in January from December, and if there is another drop in February, "we would grow more concerned."

Pickup trucks are expected to account for about 10.5 percent of U.S. auto sales in February, down from 11 percent in January and 13.5 percent in December, Ford sales analyst Erich Merkle said.

Pickup trucks are key for automakers, particularly the major U.S. automakers, because per-vehicle profits are higher.

Citibank analyst Michaeli Itay said GM will likely have an "OK month" and said that while sales results will be "tough" compared with a year ago, the "good news" for the No. 1 U.S. automaker is not resorting to big pricing discounts.

Kelly Blue Book, which said Chrysler will lead the pack as far as year-on-year sales gains, said that Japanese automakers Toyota Motor Corp <7203.T>, Honda Motor Co <7267.T> and Nissan Motor Co <7201.T> will all experience modest sales gains in the month.

(Reporting By Bernie Woodall, editing by Matthew Lewis)

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