Tags: Auto Sales

New Car Buyers May Have to Wait to Find Bargains

Thursday, 02 June 2011 01:14 PM EDT

New car buyers looking for a bargain this summer may have to wait.

Dealers usually offer discounts during the warmer months to clear out older models, but cars are in short supply this year because of the Japan earthquake and other factors. The lack of vehicles, especially some popular fuel-efficient models, contributed to a steep sales decline in May, the first monthly decrease this year.

The trend is likely to persist for the next several months. And although Toyota announced a new round of incentives Wednesday, most analysts don't expect many good deals until the end of the summer. Some are advising people to delay their purchases.

"If you don't have to buy, wait until fall. If you lease a car, extend it," said Edmunds.com chief Jeremy Anwyl.

Consumers heard that message in May. There were just over 1 million cars and trucks sold in the month, down 8 percent from April and 4 percent from last May.

Automakers say they are not worried about a reversal in the industry's recovery, despite a raft of bad economic data in the last few days. Once inventories are back to pre-earthquake levels and the deals come back, buyers will return, they say.

Even with the latest decline, auto sales are up 14 percent so far in 2011.

Ford Motor Co. and General Motors Co. are sticking with annual forecasts of around 13 million vehicles in U.S. sales. That's far short of the 2000 peak of 17.3 million, but better than the 10.4 million trough in 2009.

Ford is so bullish on the recovery that it increased third-quarter production by 8 percent over last year. Its chief economist, Ellen Hughes-Cromwick, said there was good economic news with the bad, including moderating gas prices, consistently low interest rates and better availability of loans.

But in May, the bad news prevailed. Toyota, Honda Motor Co. and Nissan Motor Co., all of which ran short of models due to parts shortages caused by the earthquake, had the biggest sales declines. Toyota was down 33 percent, Honda 23 percent and Nissan 9 percent from last May.

GM's sales dropped 1.2 percent, as falling pickup truck sales offset strong sales of more fuel-efficient cars and crossovers. It was the same story at Ford, which saw sales fall 2.4 percent for the month. Pickup sales dropped more than 10 percent at both companies, the victim of high gas prices and a weak construction industry.

Fuel economy was clearly driving sales, with small car sales showing particular strength. For the first time in decades, Ford sold more F-150s with V6 engines than it did with larger, less efficient V8s.

Automakers usually use the warmer months to cut deals and make way for new models in the fall. But this year, they don't have many vehicles left. At the same time, automakers are raising prices to make up for the higher price of steel and other commodities.

As a result, buyers paid $29,817 per vehicle last month, the highest average price ever recorded, according to auto pricing website Truecar.com.

The car companies offered their lowest incentives in six years last month, according to Edmunds, spending an average of $2,094 per vehicle. That's flat from April and nearly 20 percent lower than in May 2010. Prices on Japanese cars have risen an average of $610 per vehicle since the quake, Edmunds said.

Shortages are the biggest reason. IHS Automotive estimates that the U.S. has around 400,000 fewer cars in inventory than it should have. Toyota began May with only enough Prius hybrids for 10 days of sales. A 60-day supply is considered healthy. As a result, the Prius, made in Japan, is now selling at a $5,000 premium, according to the Kelley Blue Book.

Rising prices prompted Bradd Levin of Stamford, Conn., to go ahead and buy a 2011 Honda Pilot in May. Levin and his wife are expecting their third child in December, so he was planning to buy a larger vehicle early this fall. He figured demand for the small SUV would be low because it's not as efficient as some smaller cars.

But Levin, a salesman at a plumbing supply business, was startled when Honda raised its interest rate offer and took away a $750 cash incentive in May. Then, he heard that Pilots with navigation systems could be in short supply because the chips used for them are made in Japan. He decided to buy the Pilot while he could still get a 2.9-percent rate and pay less than the suggested retail price.

Alec Gutierrez, manager of vehicle valuation for Kelley Blue Book, expects prices to be high into the fall. Then a likely drop in gas prices and increases in Japanese production should bring them back to more normal levels. Honda said last week that its North American production will return to near-normal levels in August, while Toyota has said its Japanese production will be at 90 percent of capacity this month.

Toyota Motor Corp. is going against the trend by offering more incentives. It said Wednesday that it will offer lease deals, cash incentives and low-interest loans on many of its cars and trucks in June, including the Camry sedan.

Paul Ballew, a former chief economist at GM who is now at insurance firm Nationwide, said car companies and consumers are heading into a tussle over prices in the second half of the year. Buyers remain hesitant as they try to decipher conflicting economic news, while automakers are trying to increase prices and cut incentives.

He also suggested waiting until late summer to buy, and said Japanese automakers are likely to raise incentives in an effort to fight off competitors like Hyundai Motor Co.

"Hyundai is the competitor that has kept Toyota up at night for the last decade," he said.

Other automakers reporting Wednesday:

• Volkswagen said its sales were up nearly 28 percent for the month, mainly due to a 59 percent increase in sales of its redesigned Jetta sedan and wagon. It was VW's best sales month in more than seven years.

• Hyundai said its sales rose 21 percent in May, led by the redesigned Elantra compact car.

• Kia Motors America sales were up 53 percent, led by the Sorrento crossover.

• Chrysler Group LLC said sales were up 10 percent. Sales of the Jeep Grand Cherokee almost tripled from last May.

© Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

New car buyers looking for a bargain this summer may have to wait.Dealers usually offer discounts during the warmer months to clear out older models, but cars are in short supply this year because of the Japan earthquake and other factors. The lack of vehicles, especially...
Auto Sales
Thursday, 02 June 2011 01:14 PM
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