SAAR soars in 'a breakout month'
Sustainable? You bet, say execs and analysts
The really good news in last week's way-better-than-expected February sales report: It was no fluke. The rest of 2012 looks nearly as strong, and carmakers and their suppliers are nicely positioned to take advantage of the surge in demand.
U.S. new-vehicle sales jumped 16 percent to 1.15 million in February. The 15.1 million selling rate was the highest since February 2008 and was up from 14.2 million in January.
It was a month in which everything seemed to go right. Even soaring gasoline prices were a plus, seeming to boost sales instead of curb them.
Consumer credit is flowing, inventories are rising, and new models are streaming into showrooms. Throw in mild weather and an extra sales day because of leap year and you had a SAAR to die for.
But is a 15.1 million SAAR sustainable?
"The February results provide an encouraging outlook for 2012, not only for Toyota and Lexus but for the entire industry," said Bob Carter, head of Toyota Division. "And despite concern about rising gas prices, we're well positioned to respond to shifts in customer demand."
Don Johnson, General Motors' U.S. sales boss, credited a stronger economy, pent-up demand and loosening credit for February sales that he said "surprised many of us."
He added: "The underlying economy is stronger than we had anticipated."
Most analysts expected February's seasonally adjusted annual rate of sales to fall between 13.8 million and 14.3 million.
"It's a breakout month, the first month that far exceeded expectations," said Jesse Toprak, vice president of TrueCar.com.
Dealers were ready for the spike in February demand, starting the month with a 66-day supply of vehicles, the most stock in a year. And they look like they'll be OK for the rest of 2012.
Carmakers and suppliers slashed North American capacity dramatically to survive in 2009 and 2010. As sales gained momentum late last year, several added shifts or are doing so.
Anthony Pratt, Polk's director of forecasting, said automakers could meet higher demand this year as long as it doesn't exceed 15.5 million.
"There could be some short-term constraints, but that would be a good problem to have," he said. "Automakers can manage a small increase, but some of their suppliers might feel a pinch."
Toyota Motor Sales and American Honda are steadily restocking. Each managed a 12 percent sales gain in February, the second straight month each has increased year-over-year sales after struggling with supply disruption caused by the Japan earthquake and Thai floods.
"Inventories are excellent and getting better all the time," Carter said.
Toyota added a second shift at its Blue Springs, Miss., plant in February and will boost Highlander SUV production capacity next year there and transmission output later this year in West Virginia, he said.
February's big volume lifted almost everybody. The only exception was Mitsubishi, which was down 31 percent.
Chrysler Group sales soared 40 percent, Volkswagen Group of America was up 34 percent, and Hyundai-Kia Automotive was up 26 percent. Nissan North America matched the industry average with a 16 percent increase.
General Motors gained just 1 percent from February 2011, when the company ran big incentives. This year GM slashed February incentives by $720, or 19 percent, from the level of February 2011, TrueCar.com said.
Ford Motor Co. slightly underperformed the market with a 14 percent increase in sales. But Ken Czubay, Ford's head of sales and marketing, said "sales momentum built as February unfolded, with higher fuel prices driving consumer demand for more fuel-efficient vehicles in the second half of the month."
Executives sounded relaxed about the trend toward higher pump prices.
"We do not believe short-term fluctuations in pump prices will curtail industry growth this year," GM's Johnson said. "That's because American consumers and the overall economy are in much better shape than they were a year ago."
Lithia Motors CEO Sid DeBoer even sees rising gasoline prices as a sales driver because automakers have introduced more high-mpg models.
"Four- to five-dollar gas won't have the same impact," he said. "If anything, it allows people to trade up to a car that gets 24 mpg rather than one that gets 16 or 18 mpg."
Erich Merkle, Ford's chief sales analyst, said customers looking for "more fuel-efficient offerings" more than doubled February sales of the Focus from a year ago, when Ford was phasing out the old version and introducing the redesigned model.
But he said Ford's sales increase was even greater on the truck side than the car side, led by the F-series pickup gaining 26 percent with two V-6 engines capturing 57 percent of the model's sales mix.
Toyota's Carter said rising fuel prices "are pulling ahead some volume we wouldn't see until later in the year."
Gasoline prices normally begin to rise in late April, he said, which spurs consumers to move to more fuel-efficient vehicles. Because prices went up in February, that shift is happening sooner. Carter said February sales of the Toyota Tacoma small pickup rose 35 percent from the same month last year.
Reid Bigland, Chrysler Group's U.S. sales boss, also discounted fuel prices as a negative because automakers are offering better fuel economy across the board.
"A few years ago higher fuel prices were a threat to our total vehicle sales," he said in a statement. "Today higher prices have become far less of an issue."
GM's Johnson remains upbeat about the rest of 2012. He said consumers will adjust to high fuel prices and added that the continued high value of used cars will help to finance down payments on new vehicles.
"When you look at the equity that people have in their current vehicles, and the improved credit availability and the low cost of financing," he said, "absolutely that's [what] makes it a great time to buy a car."
You can reach Jesse Snyder at firstname.lastname@example.org.