Game on: Japan's giants roar back

Toyota and Honda came roaring back in May, putting the squeeze on General Motors, Ford and other automakers that have scored big gains in market share since the 2011 Japan earthquake.

Industry sales rose 26 percent, and the strong performance, especially by the Japanese giants, marked a return to a normal -- meaning fully restocked -- sales climate.

"The industry is beginning to equalize again," GM North America President Mark Reuss told Automotive News.

May sales totaled 1.3 million units. There were mostly winners and darned few losers.

But three high-fliers in the past year suddenly looked mortal compared with the overall market. VW Group gained 24 percent; Nissan North America, 21 percent; and supply-constrained Hyundai-Kia Automotive, 11 percent. All three had dramatically outperformed the market for several months.

The rebound by Toyota and Honda brought the question of incentives to center stage.

When the March 2011 earthquake led to bare Toyota and Honda lots in May, competitors took it as a signal to throttle back on incentives.

Now all the Japanese are fully stocked. Toyota Motor Sales U.S.A. rose 87 percent from May 2011, and Toyota/Scion, up 89 percent, passed Chevrolet and was second only to Ford among brands.

American Honda, which struggled in April, was riding high in May. Sales were up 48 percent after a 2 percent decline the month before.

"Honda's return to strength is in full swing," said John Mendel, American Honda's top sales executive.

He said it was the best May for Honda/Acura since before Lehman Bros. collapsed in the fall of 2008, sparking a financial crisis. Honda Division reported sales of 119,411, a 46 percent increase as sales of the Civic surged 83 percent.

"The Civic, which received much media scrutiny when launched, had one of its best sales months in recent history," said Edmunds.com analyst Jessica Caldwell.

At Toyota Division, fleet sales have begun to decline as a percentage of total sales. It was 15 percent through April, then dropped to 13 percent in May. And it will go lower.

May was "the last month fulfilling our commitments to fleet customers," said Toyota Division chief Bob Carter. "During June, July and August, total fleet volumes will be below 8 percent, and we will be in single digits for the rest of the year."

He said Toyota intends to "stay aggressive" with marketing efforts in June, including 0 percent financing on many models. The Camry will have 2.9 percent financing and a $219 monthly lease deal in much of the country.

General Motors and Ford Motor Co. underperformed the market in May.

At GM, sales were up 11 percent, to 245,256 units. Reuss said he won't strategize for the short term as GM prepares to introduce a slew of new models in the next 18 months.

"Anything we do now to chase market share because of an episodic re-entry into the market by the Japanese would destroy our brands and our positioning into the launches of our new products," he said. "And so that's what we're not going to do.

"If we want to go make market share and sell a lot of cars, we know how to do that," Reuss added. "Is it really good to destroy all that to make some sort of monthly number? No. We're in it for the long haul. We know it's coming."

Ford sales were up 13 percent, to 215,699 units, just enough to stay ahead of Toyota in the No. 2 U.S. sales slot behind GM.

U.S. sales boss Ken Czubay said Ford began increasing production too late and expects to be capacity-constrained on cars despite a plan to add 400,000 units of capacity by year end by adding shifts at three plants.

"We have our plants running flat out," Czubay said. "On very high-demand products we could have sold more, but we're working on that."

Ford bumped fleet sales a bit to 35 percent of the total sales mix, from 34 percent a year earlier, and increased incentives about $100 a unit in May, especially on old-generation 2012 Ford Escape SUVs now being replaced by redesigned 2013 models.

Chrysler Group was the only Detroit 3 automaker to add market share in May. Its 30 percent sales increase was the company's 26th consecutive monthly gain.

Fiat sales more than doubled, and the Chrysler brand rose 81 percent. Jeep was up 24 percent, and Ram was up 23 percent. Dodge, with the new Dart small car going on sale this month, increased 14 percent.

Sales boss Reid Bigland said Chrysler is "adding production capacity as quickly as possible to meet strong demand."

Nissan North America sales were up 21 percent in May. Nissan Division gained 16 percent, but Infiniti sales jumped 66 percent, by far the luxury brand's biggest gain since before the slump.

"It's clear that the recovery in the industry is continuing," said Jonathan Browning, CEO of VW Group of America. But he cautioned that the second half of the year could be more challenging than the first because of economic problems in Europe and new talk by Republicans about a congressional stalemate on the U.S. debt ceiling.

He added that falling gasoline prices could shift demand toward a heavier mix of trucks.

Some analysts saw the May sales numbers as a disappointment. The 13.8 annual selling rate was the first monthly SAAR below 14 million since December.

"Clearly, the sales numbers are not encouraging," said TrueCar.com analyst Jesse Toprak. "But the stock market, housing, jobs and consumer confidence reports were all negative toward the end of the month. Given all that, sales should have been worse."

Toyota's Carter doesn't expect the poor U.S. jobs report released on Friday to cause a slump in summer car sales.

"We're feeling traffic in our stores and a willingness to buy," he said. "People are saying they can't wait any longer and are feeling very good."