U.S. light-vehicle sales are still expected to decline for a second consecutive year in 2018, but implacable demand for high-profit SUVs and the extra cash that last year's income-tax changes put in some customers' pockets are helping to soften the fall.
Auto sales came in stronger than expected in May, rising 4.7 percent from a year ago to 1.59 million, according to the Automotive News Data Center. It was the third consecutive year-over-year gain for the industry's seasonally adjusted, annualized selling rate, though the 16.91 million rate for May also was the industry's lowest SAAR since August.
Analyst forecasts were increasingly optimistic based on how the year has progressed. LMC Automotive last week raised its 2018 outlook to 17.1 million vehicles from 17 million. Cox Automotive said it could make an upward revision to its 16.7 million forecast at the end of the second quarter. Automakers sold 17.2 million new cars and trucks in 2017, which was the third year in a row topping 17 million.
Many of the underlying economic factors supporting auto sales — low interest rates, higher employment figures and relatively low gasoline prices — have been in place for some time. The May jobs report released last week provided further evidence: U.S. employers added 223,000 jobs last month, as the nation's unemployment rate fell to 3.8 percent. Hourly worker pay rose an average of 2.7 percent from a year earlier, according to U.S. Labor Department data.
The tax-reform bill that passed in December has been an additional tail wind for sales.
"It's sort of like we're getting the best of both worlds: strong economic activity without the inflation we were worrying about," Charlie Chesbrough, senior economist for Cox Automotive, said on a call with reporters. "Right now, the economy seems to be in a very strong sweet spot. That little additional money is having a positive impact on [consumers'] wallets and their confidence."
May's sales figures also were helped by one extra selling day from the same period a year ago. The month is typically among the strongest of the year thanks to discounts offered over the long Memorial Day weekend.
"Despite rising transaction prices and higher fuel costs, the new-vehicle market remains strong. Consumers continue to buy trucks and SUVs at an accelerated pace, more than offsetting the ongoing drop in car sales," said Karl Brauer, executive publisher for Autotrader and Kelley Blue Book. "Economic indicators suggest we'll see this trend throughout the summer and fall, though talk of tariffs and the specter of $4-plus-a-gallon fuel could end the party, and inventory levels remain relatively high at several automakers."
Truck brands continued to lead the way in May. Jeep sales, up 29 percent, carried Fiat Chrysler Automobiles to an 11 percent gain.
Ford Motor Co. sold more than 84,000 F-series pickups, an 11 percent increase, despite production downtime at its F-150 and Super Duty plants after a magnesium supplier plant caught fire, creating a shortage of some parts.
The Volkswagen brand, helped by new and redesigned crossovers, saw May U.S. sales rise 4 percent to 31,211. Volume rose 7.1 percent at Subaru, 15 percent at Mazda and 32 percent at Mitsubishi on higher light-truck deliveries.
"Consumers are switching to sport utilities at the highest sustained level in recent memory, and, in addition, those households with a sport utility in the garage are more likely to get another one — by a wide margin — than those households with any other type of vehicle in the garage," said Tom Libby, IHS Markit's manager of automotive loyalty and industry analysis.
"These buyer behavior data are reflected in the results we are seeing today, including the continued rise of Jeep, unencumbered by cars, and the revival of Volkswagen now that the brand has two competitive crossovers to offer."