Car Sales Up in April, But Prices Set To Rise The Rest of The Year

Japanese earthquake has created shortage of vehicles for the rest of the year, so prices rising and rebates dropping

April car sales kept going strong, fueled by strong consumer demand for small cars and growing consumer confidence.

Overall industry sales were up 17% compared with a year ago, according to AutoData. General Motors had a bang-up month, with sales up 26%. It managed to win back its title of biggest car seller in the U.S., an honor Ford held in March.

The bad news, though, is that prices are going up. The earthquake and tsunami that hit Japan in March is slowly draining supply, allowing dealers to increase prices. It's a tough blow to consumers who are already coping with rising gas prices at the pump and higher food prices.

Consumer web site says rebates are shrinking - they were down 10.5% in April compared with March. Compared with a year ago, rebates were worth 19.6% less.

"This is the clearest indication yet that automakers are gearing up for inventory shortages," said Jessica Caldwell, director of industry analysis for "Demand for new cars has been growing as economic recovery has strengthened, but now the industry may experience a hiccup if consumers decide to wait for the next deal to come around, which may not be until the autumn."

Japanese automakers have told their dealers that shortages of vehicles will start to be felt in June and last the rest of the year. It will especially affect Japanese automakers Toyota, Honda, Nissan, Mazda, Suzuki and Mitsubishi, though U.S. automakers may be short some vehicles as well.

Prices are already starting to rise., which tracks new car prices, says the price of a Lexus RX450 is expected to jump $1,011 by May 8, up 2% in just seven days. The Lexus IS 250 is expected to go up $750 in the same time frame. Lexus could be out of vehicles by the end of May.

Transaction prices are the highest TrueCar has ever recorded, the company says.

Automakers regularly battle one another with rebates to help sell models on which they have excessive supply. Toyota, for example, has been discounting Camry and Corolla, while Honda has kept up incentives on Accord and Civic. Nissan has been one of the most aggressive discounters the last few months. But Earl Hesterberg, CEO of Houston-based Group 1 Automotive, which operates dozens of dealerships, says the lower supply of vehicles will increase prices now, and with them profits for dealers who won't have to scrap as much to move excess inventories of cars. "We could see a 30% to 50% decline in shipments of many key Japanese brand models," said Hesterberg.

Detroit automakers, not as greatly affected as Japanese automakers by the shortage of parts, though, are likely to hike prices too, though not as much as foreign makes. This will give Ford, GM and Chrysler an even greater pricing advantage than they already have. Mike Jackson, CEO of auto retailer AutoNation said, "It will still be a competitive marketplace and consumers will still have a lot of choices."

J.P. Morgan analyst Himanshu Patel expects Ford to be the biggest beneficiary of Toyota's and Honda's supply problems. Ford is more likely to benefit from selling more Fiesta and Focus cars, as well as from getting higher prices for them than they otherwise would, said Patel.

"In May, we'll see some actual shortages due to inventory which will affect sales in the coming months," said Jess Toprak, VP of Industry Trends and Insights for

The industry average incentive spending per vehicle was approximately $2,386 in April, according to, which represents a drop of four percent from March 2011 and down 11 percent from April 2010. That number is expected to decline in the next few months even more.

As gas prices climb, there is a greater demand for small cars. And those are the ones most greatly affected by the Japanese disaster. Toyota Yaris, Honda Fit and Nissan Versa are all imported from Japan, and have been directly impacted. Meantime, Ford has a new Fiesta and Focus in market, while Chevy has a new fuel efficient Chevy Cruze.

Used cars are hardly a refuge for sticker shocked buyers. According to the National Automobile Dealers Association, the transaction price on a new Toyota Prius starts at $22,400, while a two-year old model is only $1,600 less.

There is a perfect storm driving up the cost of used cars. The loss of production due to the Japanese earthquake, and the fact that so few new cars were sold two years ago at the heart of the economic meltdown. Some six million fewer vehicles were sold in 2009 than the 16 million a year the industry was selling a few years earlier.

Prices for used cars at auctions where dealers buy their cars are up around 15% to 20% from a year ago.

There is a silver lining, though, as dealers say they are paying more for consumer trade-ins than they were because of the shortage.

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