May is expected to produce the U.S. auto industry’s best sales pace since last summer.
Forecasts call for a seasonally adjusted, annualized selling rate of about 17.3 million, the highest level since August 2014 and second-highest for any month since January 2006.
But because the month has one fewer selling day than May 2014, sales volume is expected to decline about 1 percent year over year -- more evidence that the market is nearing a plateau.
“May sales will reach the highest total year to date and could remain the highest until December of this year,” Alec Gutierrez, senior analyst at Kelley Blue Book, said in a statement. “May typically is a strong sales month, as consumers take advantage of warmer weather and advertised deals for the extended Memorial Day sales weekend.”
TrueCar said sales during the holiday weekend were 7 percent higher than a year ago. The upcoming weekend also could be strong, as automakers and dealers work toward their monthly targets.
Deals closed through Monday, June 1, count toward May totals. Automakers are scheduled to report May results Tuesday.
“Retail sales ramped up this month, with strong holiday promotions pulling in shoppers ready to start the summer with a brand-new vehicle,” Eric Lyman, TrueCar’s vice president of industry insights, said in a statement. “This month solidifies that the industry's expansion continues unabated. With very healthy retail performance and modest incentive spending, the industry is in a solid position to finish the year with 17.1 million units.”
Ahead of pace
For 2015, industry sales are 5.4 percent ahead of their 2014 pace through April. Automakers sold 16.5 million vehicles in all of last year.
TrueCar estimates the May SAAR to be 17.4 million. KBB and LMC Automotive are projecting 17.3 million. That compares with 16.5 million in April and 16.7 million in May 2014.
“By all accounts, May will be a good month -- over 17 million SAAR is pretty much a done deal,” said Jessica Caldwell, senior analyst at Edmunds.com.
“It helped that Memorial Day fell earlier in the month this year, so there was a strong buildup before the weekend, with time to capitalize on deals even after Memorial Day. The only pitfall is that an early Memorial Day could lead to a weak close since the May buyer pool could be depleted by the month's end.”
At the same time, the loss of one selling day means most automakers are likely to post slight declines from last May, forecasters said. Of the eight largest companies, only Fiat Chrysler Automobiles is projected to achieve a year-over-year gain, KBB said. FCA’s Jeep brand could set an all-time monthly record, according to TrueCar.
KBB is forecasting declines of 5 percent for American Honda, 3 percent for Hyundai-Kia and 1.7 percent for both Ford Motor Co. and Toyota Motor Co.
It projected a 0.9 percent decline for General Motors, but TrueCar said GM sales may rise 3.1 percent. Subaru sales could surge 16 percent, TrueCar said.
Transaction prices are on pace to top $30,000, according to J.D. Power, which would be a record for May. At the current level, J.D. Power said, total consumer spending would reach $39.6 billion, the third-highest for any month in history, behind only last August ($40.3 billion) and July 2005 ($39.7 billion).
Transactions and incentives
“May’s selling rate is making up for a slightly weaker April, and keeping the year on track to reach the elusive 17 million unit mark,” Jeff Schuster, senior vice president of forecasting at LMC, which jointly develops its forecasts with J.D. Power, said in a statement. “Over the next several months, all eyes will be on the timing of the expected increase in interest rates by the Federal Reserve, as the rate increase could have a significant increase on auto sales volume by year-end.”
Incentive spending fell 0.4 percent from a year ago and 0.2 percent from April, according to TrueCar. But its calculations show incentives rose 23 percent year over year for Hyundai, 19 percent for Kia and 9.1 percent for GM.
Analysts say a 60-cent increase in the average cost of gasoline since January is contributing to a rebound in sales of fuel-efficient cars. Hybrid and electric vehicles have grown from 2.9 percent of the market in February to a projected 3.5 percent this month, J.D. Power said.
Meanwhile, rising incentives on large pickups are helping sales in that segment. TrueCar said strong demand for the redesigned Ford F-150 has prompted aggressive responses by its competitors, with the Ram, GMC Sierra and Chevrolet Silverado all selling for at least 13 percent below sticker price, on average.
“The initial success of the all-new aluminum body F-series is undeniable,” TrueCar President John Krafcik said in a statement. “We project that positive sales and revenue momentum will continue and expect automakers within the full-size segment to offer larger-than-usual discounts to remain competitive.”