May Auto Sales a Small Success

Sales rebounded slightly last month as Americans opted for smaller carsor a deep discount on a big SUV

For those automakers producing fuel-efficient cars, May's sales numbers were a rare ray of sunshine breaking the industry's gloom of recent months.

Overall, sales totaled 1.57 million units, up 5% from 1.49 million units a year earlier before adjusting for one additional sales day in May, 2007, with strong showings from two of the three Detroit automakers. The seasonally adjusted annualized rate of sales rose to 16.16 million units from 16.15 million units a year earlier.

As gas prices continue to rise, one of the key factors behind this modest jump is that consumers are continuing their move from trucks to passenger cars and developing a taste for smaller cars and gas-electric hybrids.

Selling Points

Toyota Motor (TM), which last month displaced Ford Motor (F) as the No. 2 U.S. manufacturer, posted a 14% boost in U.S. sales for May, while General Motors (GM), the top U.S. manufacturer, reported sales that were up 9.6% over last year. Both companies showed strength in more fuel-efficient offerings like GM's subcompact Chevy Aveo, up 20% from a year ago.

Toyota enjoyed huge sales gains by the Prius, which rose 180% to 24,000 cars, and the new Tundra, which increased 114% to almost 18,000 trucks. Chrysler's passenger vehicle sales, including Chrysler, Jeep, and Dodge models, rose 4.3%. "Fuel efficiency is becoming one of the top purchase factors," said Randy Pflughaupt, vice-president of marketing for the Toyota division.

News at Ford was less celebratory, with a reported 3% drop in retail sales. The company continues to suffer from a lack of refreshed and redesigned products. In May, Ford's passenger car sales fell 18% and sales of trucks and sport-utility vehicles were flat. GM claims it has a fuel-efficiency edge over Ford for pickups, which has helped during a period of overheated gas prices.

Sweetening the Pot

But while consumers are responding to fuel efficiency and smallness, they're also responding to deep price cuts and other incentives. The average U.S. auto incentive in May was $2,497 per vehicle, up $44, or 1.8%, from April, and $123, or 5.2%, from May of last year, according to Financing as low as 1.9% on Ford's redesigned Expedition helped sales jump 20%, revealing that some consumers may be more interested in a bargain than in cutting carbon emissions. GM's big Suburban SUV was up 23%. At the same time Toyota is offering big incentives, more than $5,000 including dealer incentives, to sell its redesigned full-size Tundra pickup.

Some gas guzzlers are doing well even without incentives. Chrysler reported a 20% surge in Jeep sales due in part to runaway popularity of the new, redesigned four-door Wrangler launched last fall. While it only gets about 16 mpg, the SUV is flying off dealer lots without any sales incentives. Wrangler sales in May were up 115% over the same month a year ago, and sales are up 84% on the year. "It has been quite a sales phenomenon," says Jeep brand spokesman James Kenyon.

A "Gathering Storm"

Still, efficiency looks poised to beat out bulk in the long run. May's sales numbers for smaller cars, more fuel-efficient vehicles, and increased interest in gas-electric hybrids may be more than a passing fancy or a temporary reaction to spiking gas prices.

With the 2008 Presidential race in full swing, debates and speeches happening almost weekly, there are repeated reminders from candidates, as well as the White House, that tailpipe emissions are a growing problem for the U.S., and that Americans should be rethinking their vehicle purchases. "Call it a gathering storm in the early stages, but people who wouldn't have traded out of SUVs are doing so with greater frequency in part because of the abundance of rhetoric and social pressure not to buy a gas guzzler," says independent marketing consultant Dennis Keene.

As gas prices begin to trickle downward, all eyes will be on auto sales numbers in the coming months, to see whether American consumers are really losing their lust for big cars.

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