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GM, Ford Sales Fell Due To High Gas Prices

Wed, 06/01/2011 - 8:50am
Dee-Ann Durbin and Tom Krisher, AP Auto Writers

DETROIT (AP) — U.S. auto sales cooled off in May after setting a torrid pace earlier in the year.

General Motors' sales fell 1.2 percent as it offered fewer deals to customers and cut sales to rental car companies.

The largest U.S. car company says it sold 221,192 vehicles last month, led by smaller, more fuel-efficient models. But the decline marks a reversal from a 26 percent sales increase in April.

Ford sales fell 2.4 percent as strong sales of small cars were weighed down by lower sales of pickup trucks. Sales rose 13 percent in April.

GM blamed the drop mainly on a decision to cut sales to rental car companies by 21 percent from a year earlier. Sales to individual buyers rose 9 percent despite a 10 percent drop in rebates and other incentives.

GM is the first major automaker to report sales on Wednesday. Analysts expect overall U.S. sales to fall 4 percent from last May due to fewer deals, a shortage of models because of the earthquake in Japan and uncertainty over high fuel prices. The economy has sputtered somewhat since April, when industry sales rose 18 percent, also contributing to the May shortfall.

GM's sales were led by the new Chevrolet Cruze compact and the Chevrolet Equinox and GMC Terrain midsize crossover vehicles as consumers continue to car shop with one eye on the gas pump. Cruze sales were up 40 percent over the Chevrolet Cobalt, the lackluster model it replaced. Equinox sales were up 34 percent and Terrain sales rose 42 percent. Sales of GM's full-sized pickup trucks, however, were down about 13 percent.

Don Johnson, GM's vice president of sales, said consumers are continuing to take a wait-and-see attitude as gas prices continue to fluctuate around $4 per gallon.

Even so, he feels consumer confidence over the long term remains strong and sees pent-up demand among drivers who kept their vehicles longer than usual during the economic downturn.

"All things considered, we continue to believe the recovery remains on track," he said.

The economy may test that optimism. Recent reports have been discouraging, raising worries among economists about the strength of the recovery.

Payroll processor ADP said Wednesday that private employers added just 38,000 jobs in May, down from 177,000 in April. It's the weakest result since September.

The Institute for Supply Management said Wednesday that U.S. manufacturing activity expanded in May at the slowest pace in 20 months, thanks in part to a sharp rise in energy prices.

The government also said construction spending remained weak in April.

Johnson said although manufacturing fell from April, businesses are continuing to expand. He also said future hiring and investment look positive. And a recent drop in gas prices should help future auto sales, although consumers will still be thinking fuel-economy first.

"Consumers view the industry's broad selection of fuel-efficient models as a very positive factor," he said.

They might not find the usual summer bargains, however. Automakers usually use the warmer months to cut deals and clear out old inventory to make way for new models in the fall. But this year, they don't have many of last year's models sitting around.

There aren't enough cars in the marketplace, particularly the fuel-efficient variety, because Japanese automakers had to cut production after the March 11 earthquake and domestic automakers can't produce cars any faster. Automakers are also raising prices to make up for the higher price of steel and other commodities. As a result, the deals are disappearing. Experts are advising people to delay their purchases if they can.

"If you don't have to buy, wait until fall. If you lease a car, extend it," said Edmunds.com chief Jeremy Anwyl. Whatever deals buyers see will be "fleeting," he said.

Automakers offered their lowest incentives in six years last month, according to Edmunds, spending an average of $2,094 per vehicle on sweeteners such as rebates and low-interest loans. That's flat from April and nearly 20 percent lower than in May of 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 at the current sales pace. Toyota began May with only enough Prius hybrids for 10 days of sales. A 60-day supply is considered healthy.

Smaller cars that get good fuel economy are in particularly high demand. The Prius, which is made in Japan, is now selling for 2 percent above the manufacturer's suggested retail price of $23,250, a $5,000 premium.

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