Stout March sales show that U.S. consumers aren't flinching -- yet -- from higher gasoline prices, Middle East unrest and devastation in Japan.
Sure, the pace of sales eased from an unusually strong February, as General Motors, Toyota Motor Corp. and others dialed back their big discounts. And rising gasoline prices are nudging buyers toward smaller cars.
But March sales outpaced most analysts' projections. Light-vehicle sales rose 17 percent from the same month last year, to a seasonally adjusted annualized rate of 13.1 million, according to the Automotive News Data Center.
The underpinnings of rising retail demand remain intact, automakers and pundits say: improving availability of credit, a brightening jobs picture, low interest rates and pent-up demand.
"Based on everything we see right now, we don't see anything significant that's going to slow down the industry," said Don Johnson, GM's U.S. sales chief. GM left its 2011 sales outlook unchanged, at 13 million to 13.5 million.
It's what automakers can't yet see that worries some. Parts shortages stemming from the March 11 earthquake in Japan will continue to plague Japanese automakers and threaten to disrupt production at U.S. plants in coming weeks, said Jeff Schuster, head auto forecaster at J.D. Power and Associates.
"The recovery is on track, but I think there are some potential disruptions ahead of us," he said.
Schuster thinks March sales may have benefited from a pull-ahead effect, as consumers who were worried about shortages rushed into showrooms. Sales of the Toyota Prius hybrid jumped 52 percent amid widespread media reports that the car could be in short supply soon.
So far, rising oil prices and the unfolding Japan quake's aftermath haven't prompted forecasters to shave their 2011 sales forecasts. But the murkiness is keeping a lid on upward revisions for now.
Schuster said he would have raised his projection by up to 200,000 units if not for the earthquake. TrueCar.com Vice President Jesse Toprak says higher gasoline prices and instability in the Middle East trimmed up to 500,000 units off March sales.
Toprak predicts incentives will continue to fall as manufacturers sweat out production problems. He pegs the average discount per vehicle in March at $2,432, the lowest level since January 2007.
"Manufacturers will choose not to waste money promoting cars when they anticipate a shortage," Toprak said.
The shift toward smaller cars continues, driven by rising gasoline prices and an influx of hot new cars. Small cars represented 29 percent of car sales in March, up from 26 percent a year earlier, according to the Automotive News Data Center. GM and Ford Motor Co. had strong sales of their recent small-car entries, the Chevrolet Cruze and Ford Fiesta.
Burgeoning demand for smaller cars could strain supply across the industry in coming months, warned Ken Czubay, Ford's vice president of U.S. marketing, sales and service.
"Most likely lean small-car inventories will be a headwind on the industry's sales rate as we begin this month," Czubay said during a conference call with reporters.
In contrast, truck sales have cooled. Ford posted a 28 percent gain in March truck sales, but commercial-fleet sales fueled much of that gain. Brisk sales to businesses masked "weakness of retail demand resulting from higher gas prices," Czubay said.
Ford will close its Kentucky Truck plant in Louisville this week because of both parts shortages and weak consumer demand for the F-series pickups, Ford Expeditions and Lincoln Navigators built there.
The smallest of the seven major automakers enjoyed the biggest sales gains last month, in percentage terms. Hyundai-Kia led the way with a 37 percent gain, followed by Chrysler Group's 31 percent, Nissan North America's 27 percent rise and American Honda Motor Co.'s 24 percent increase.
Ford topped GM for just the second time since 1998. Ford's 16 percent increase in March, to 212,295 units, topped GM's 206,621, up 10 percent. But GM's retail sales gain of 17 percent outpaced Ford's 14 percent retail sales increase.
Many dealers say showrooms are busier and customers remain upbeat despite the uncertainty.
In recent months, Carroll Smith, owner of Monument Chevrolet in Pasadena, Texas, has seen a change in the type of buyers coming in. Before, customers were buying out of necessity because their old vehicles badly needed to be replaced.
"Now we're seeing people who want to buy a car," Smith said. "They say 'It's time for a new car.' That's a very different buyer."