U.S. light vehicle sales dropped 4 percent in May -- the first decline since August -- as rising gas prices, inventory shortages, higher stickers and economic jitters curbed demand.
The pace of sales last month – 11.78 million units on an annualized basis – was the year's lowest and marked the first seasonally adjusted total below 12 million units in seven months. Industry sales are now up 14 percent year for the year after being up 20 percent through April.
Toyota Motor Corp. and Honda Motor Co., hobbled by tight supplies stemming from the March earthquake in Japan, posted sharp declines, while South Korean rivals Hyundai and Kia advanced.
General Motors and Ford Motor Co. also fell as rising gasoline prices put a damper on demand for light trucks. Chrysler Group advanced.
Ford CEO Alan Mulally cited the slowing U.S. economy for putting a dent in the automaker's May sales.
"It's a little less than what we hoped for at the beginning of the year," Mulally told reporters in Washington on Monday.
Sales slid 1 percent at GM and 3 percent at Ford as a rise in car deliveries failed to overcome a sharp decline in light truck volume.
Pickups, SUVs weak
At GM, sales of large pickup trucks dropped 14 percent and crossover demand slipped 1 percent. Ford said car sales rose 4 percent last month, but truck deliveries slid 7 percent, with F-Series pickup volume off 15 percent.
At Toyota, sales fell 33 percent, while Honda deliveries slid 23 percent.
A drop in pickup and SUV sales also resulted in a 9 percent decline in Nissan Motor Co.'s U.S. sales last month.
Chrysler, helped by new models and a 55 percent jump in Jeep deliveries, said sales rose 10 percent last month to 115,363 units – enough to outsell Toyota and Honda.
Hyundai and Kia also benefited from new, more fuel-efficient models, healthy inventory levels and the woes at Japanese rivals to post sharply higher sales. Deliveries last month jumped 53 percent at Kia and 21 percent at Hyundai.
Average U.S. gasoline prices peaked at $3.97 a gallon in May before falling, but the quick run-up in pump prices was enough to scare some new shoppers.
"A number of consumers continue to wait to see where fuel prices are going to net out and stabilize over the long term before they make a purchase decision," said Don Johnson, GM's head of U.S. sales operations. "We expect that fuel prices will continue to be volatile."
GM said car sales climbed 13 percent on a 32 percent increase in retail deliveries as consumers shifted to smaller, more fuel-efficient models. Sales of the compact Chevrolet Cruze hit 22,711 last month, including 18,996 retail units. Ford said deliveries of the Focus compact – aided by the redesigned 2012 model – surged 32 percent to 22,303 units.
GM's fleet volume fell 16 percent, reflecting a 21 percent drop in deliveries to rental car operators.
U.S. light vehicle sales were up 20 percent through April but demand cooled considerably in May because of tight inventories, fewer deals, and mixed economic signals. In addition to lower discounts, GM, Ford and Toyota have raised new car and light truck prices in recent months to counter rising costs for raw materials.
As a result, the average transaction price for a new vehicle sold in the United States rose 2.1 percent to a record $29,817 last month, online shopping guide TrueCar.com said today.
Across the industry, sales slumped in early May as automakers and dealers dialed back on incentives because of dwindling stockpiles resulting from the earthquake in Japan.
GM said its average May discount dropped 10 percent from April. TrueCar.com estimates May discounts averaged $2,107 per model – down 13 percent from April and a drop of 29 percent from May 2010.
Several automakers responded to the drop-off in showroom traffic by enhancing incentives in mid-May, a move that drew more customers.
"May was a challenge," said Patrick Browne, chief operating officer of the Colonial Automotive Group in Acton, Mass.
Browne said sales remained sluggish until the last 10 days of the month, when enhanced discounts and Memorial Day promotions drew buyers and helped push overall May sales up 5 percent over a year ago.
When Boston-area gas prices dropped back from nearly $4 a gallon last month, showroom traffic also ticked up, Browne said.
U.S. car and light truck inventories stood at 2.3 million units on May 1, down from 2.5 million on April 1 but up from 2.11 million units in May 2010.
Paul Taylor, chief economist for the National Automobile Dealers Association, said inventory shortages will plague some Japanese automakers through June and early July.
Toyota said this week it expects to increase output to 90 percent of planned levels during June, up from a target of 70 percent as recently as May 12, and well above the 50 percent level it projected for May production.
"Japanese automakers will be back on line sooner than we realize," said Taylor.
"And the fierce industry-wide battle for sales and share will resume just as soon."
Taylor said the recent dip in gasoline prices should also bring some stability to the market.
While consumers are responding to the rise in fuel prices by conserving fuel and choosing new models with smaller engines, Taylor said prices are nowhere near a level that would frighten consumers.
Ford said 80 percent of the Ford Fusion models it sold in May were equipped with a 4-cylinder engine, up from 50 percent when the mid-size sedan went on sale five years ago.
Gas prices are still short of their 2008 peak of $4.11 a gallon, and would need to climb to $4.50 a gallon to create "a disaster" for the auto industry, Taylor said.
Automakers expect the industry's sales rebound to build as the year unfolds. Ford announced plans today to produce 630,000 vehicles in North America during the third quarter, up 44,000 -- or 8 percent -- from the third quarter of 2010.
Setback for some Japanese
Combined with price increases, analysts say the decision to lower incentives in early May hurt some Japanese automakers.
"Most of the falloff is likely from the Japanese, who lost significant market share in May after raising prices and cutting their incentives drastically to preserve inventories," Barclays Capital analyst Brian Johnson said in a report.
At Nissan's Infiniti division, May sales dropped 21 percent, partly as a result of lower shipments from Japan where nearly all of the luxury brand's models are assembled.
The Craig Zinn Automotive Group in southern Florida sold 400 Japanese-brand cars and light trucks -- including Lexus, Toyota, Acura, and Subaru models -- over the holiday weekend.
In December and January 2011, the group purchased 1,000 additional cars and light trucks in anticipation of price increases.
"We planned for the short term by purchasing a lot of Japanese-brand inventory above and beyond the dealership purchasing requirements," CEO Craig Zinn said.
Bob Reichert, head of Kenwood Dealer Group in Cincinnati, said the company posted May sales that were 3.1 percent below May 2010.
His stores have benefited from a consolidation of Cincinnati-area dealers and healthy new vehicle stockpiles.
His Toyota store moved 50 new cars and light trucks over the weekend.
Sales at the group are now up 4.1 percent for the year.
"There seems to be pent-up demand and a desire to buy," said Reichert. "May was a setback, but transaction prices are up, so I have no complaints."
Mike Colias contributed to this report