After a frigid February, March will be a true test of US demand for new vehicles

DETROIT – March will be one of the most crucial months for the U.S. auto industry in years.

Sales were slower than expected In January and February, and the number of unsold cars on dealer lots grew. Some automakers had to resort to juicy discounts to lure reluctant buyers.

Most industry executives, dealers and analysts blame the historic cold temperatures and snowfall and expect warmer weather to restore consumers’ enthusiasm for car buying. Most still expect annual sales to exceed 16.1 million, which would be the highest level since 2006.

But a continuation of the trends could signal more fundamental reasons for sagging demand. For instance, consumer confidence fell slightly last month, according to the Conference Board. That hurts car sales, since buyers need to be confident before they invest in a car.

More broadly, another few months of lacklustre numbers could mean that U.S. sales have peaked and may not return to the 16 million to 17 million range that was commonplace last decade, before the financial crisis.

“March will give us a sense of how real the recovery is going to be this year,” said Alec Gutierrez, a senior analyst for Kelley Blue Book.

U.S. consumers bought just under 1.2 million new cars and trucks in February, unchanged from a year ago. That follows a 3 per cent drop in January — the first year-over-year decline since August 2010.

So far this year, new vehicle sales have been on pace to hit a little more than 15 million for the year. Last year, the industry sold 15.6 million cars and trucks.

Gutierrez believes sales will recover and hit 16.3 million this year. Pent-up demand from the snowy winter will help, he says, along with low interest rates, attractive lease deals and strong new competitors like the Subaru Forester and Jeep Cherokee.

“We think there is still plenty of time left this year for sales to rebound and kind of get us back on that pace,” he said.

But if the sales pace is less than 16 million to 16.1 million in March and even April — and cold weather is no longer a factor — the industry might have to downgrade its expectations for the year, he said.

General Motors, Ford, Toyota, Honda, Hyundai and Volkswagen all reported sales declines in February. GM and Ford said the month started slowly but sales began to recover in the second half. If that momentum continues into March, fears of a broader sales slowdown may prove to be unfounded.

“We expect, heading into the month of March, a very solid spring market,” said John Felice, Ford’s U.S. sales chief.

Some automakers bucked the trend. Subaru’s February sales jumped 24 per cent thanks to strong sales of its new SUVs, the Forester and Crosstrek. Chrysler and Nissan also reported double-digit gains, but discounted some key models to get there.

Slow sales caused dealer inventories to rise in January and February, putting pressure on companies to clear their lots. Larry Dominique, executive vice-president of auto buying site, says there is now an 85-day supply of vehicles in the U.S. A 60-day supply is more typical.

Automakers are offering more discounts. Incentives are at a three-year high, averaging $2,633 per vehicle in February, up more than 5 per cent from a year ago, according to TrueCar. That’s good for consumers but expensive for automakers.

Dominique said automakers may feel pressure to continue high incentives in March, but that’s dangerous, since consumers could get accustomed to the discounts.

“If you’re starting to pour the juice on in March of this year, it really makes it hard to get off that juice the rest of the year,” Dominique said.

As for individual automakers’ sales in February:

— GM sales fell 1 per cent. Buick sales jumped 19 per cent but GM’s other brands were down.

— Ford’s sales fell 6 per cent. F-Series pickup truck sales were up 3 per cent, but Ford’s car sales dropped by 14 per cent.

— Toyota sales fell 4 per cent. The luxury Lexus brand gained 9 per cent thanks to new vehicles, but the Toyota brand struggled. Sales of the Toyota Prius hybrid plunged 28 per cent.

— Nissan’s sales rose almost 16 per cent, led by the new Rogue crossover. But Nissan’s average sales price fell almost 4 per cent — more than $1,000 — compared with a year ago, according to TrueCar. Nissan’s U.S. sales chief, Fred Diaz, said last week that the company had to lower prices on many models last year after they got too high to be competitive.

— Chrysler sales rose 11 per cent. It boosted discounts on the Ram pickup to an average of just under $5,000 per truck, or $1,000 more than competitors from Ford and GM, according to data collected by J.D. Power and Associates.

The Associated Press got the J.D. Power data from a person who asked not to be identified because the numbers aren’t typically released to the public.