Gas Prices Hit Sweet Spot For U.S. Auto Sales

U.S. automakers win with small car sales, while Japanese automakers struggle to fill demand

Gas prices have hit a sweet spot for U.S.-based automakers. They've fallen enough to spur pickup truck sales, yet remain so high that newer small cars are selling as well.

That isn't the case for Honda and Toyota, however. They ran short of small cars because of production problems tied to the March earthquake in Japan.

Industry analysts expect overall U.S. sales to rise 13.5 percent from last June, to around 1.1 million cars and trucks. Automakers were reporting June sales throughout the day on Friday.

General Motors Co. and Ford Motor Co. both said their sales rose 10 percent. Chrysler Group's sales increased 30 percent. But Honda Motor Co., and Toyota Motor Corp., each saw sales drop more than 21 percent.

Despite the Honda and Toyota numbers, the results indicate the U.S. auto industry's slow recovery from the recession is back on track after a brief slump in May.

GM said that cheaper gas lured more pickup truck buyers into showrooms. Chevrolet Silverado sales rose 5 percent and GMC Sierra sales up 8 percent compared with a year earlier. Sales of Ford's F-Series pickups rose 7 percent, while Chrysler reported a 35-percent increase in Ram truck sales

Any jump in pickup sales helps the Detroit automakers, which sell more than five times as many pickups as foreign-based brands. But even Nissan Motor Co. benefited, as sales of its Frontier small pickup rose 51 percent.

Cruze sales jumped

Still, GM's sales increases were powered by smaller, more fuel-efficient models. Sales of the new Chevrolet Cruze compact more than doubled those of the car it replaced, the Cobalt. Gas prices averaged $3.68 per gallon in June, cheaper than in May but hardly inexpensive.

"There is a certain portion of consumers that react to gas prices almost on a daily basis, and they decide what to buy based on those prices," said Jesse Toprak, vice president of industry trends and insights for car pricing site

Honda and Toyota ran short of top-selling models as demand for their smaller, fuel-efficient vehicles was rising. Sales of Honda's two top-selling models, the Accord midsize car and Civic compact, were each off about 35 percent. At Toyota, sales of the Camry midsize car were off 25 percent, and the Corolla compact was down 14 percent.

Both companies' North American factories are starting to return to normal production. The earthquake and tsunami in March damaged Japanese parts plants and cut off electricity.

Even with sales rebounding, there is some concern about the strength of the recovery. Don Johnson, GM's vice president of U.S. sales, said he now expects total industry sales to be at the low a range of 13 million to 13.5 million vehicles. J.D. Power and Associates lowered its full-year sales forecast from 13 million vehicles to 12.9 million.

Johnson blamed stubbornly high unemployment. Sluggish hiring in May contributed to that month's sales decline, which broke a string of double-digit monthly increases. Forecasters say the jobs picture improved only slightly in June.

Recovery still motoring

Johnson says the industry recovery will motor along. He said that even with unemployment around 9 percent, 91 percent of the country is still working. And many are driving older cars.

"There are still people out there looking for a vehicle and in many cases need to replace their vehicles," Johnson said.

The average car on the road now is 10.6 years old, according to the Polk research firm.

Sales were expected to be up around 5 percent from May, when parts shortages, $4-per-gallon gas and a lack of deals caused a slump.

But the pace of sales has slowed from the beginning of this year.

Shortages are keeping car prices high. That's likely to continue through September, J.D. Power said. In the meantime, hiring has slowed and incomes are flat. Consumer confidence - an important measure of whether or not cars will sell - slipped to a seven-month low in June.

"Things aren't quite as healthy in the current environment as expected earlier this year," said Jeff Schuster, J.D. Power's executive director of global forecasting.

One issue for automakers is the lack of small, fuel-efficient cars. Japanese automakers expect earthquake-related shortages of popular products like the Toyota Prius and Honda Civic for several more months, and Detroit automakers can't meet the demand for small cars alone.

The industry began June with a 30-day supply of compact and subcompact cars, and inventory has only gotten tighter since then, Ford's top U.S. sales analyst George Pipas said. That compares to a 51-day supply of all cars and trucks.

Pipas said that instead of moving into mid-size cars, small-car shoppers are simply waiting. Both Honda Motor Co. and Toyota Motor Corp. have said they expect their North American production to be at near-normal levels by late summer, and more cars will get to dealerships soon after that.

Other automakers reporting Friday:

* Volkswagen AG said its U.S. sales rose 35 percent in June on strong demand for its Jetta midsize sedan and other models.

* Nissan said sales rose 11.4 percent on strong demand for smaller vehicles. Sentra compact car sales rose nearly 31 percent.

* Hyundai Motor Co. sales were up 15.6 percent, led by the Elantra compact car. The Korean automaker sold 59,209 vehicles in June, up from 51,205 a year earlier.

* Kia Motors Co. reported its best June ever with sales up 41 percent to 45,044. The hottest seller was the new Optima midsize sedan at 7,099. That's almost six times more Optimas than were sold a year earlier.

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