Updated: Fri, 01 Mar 2013 14:10:00 GMT | By Joseph Szczesny

Auto sales surge despite Washington budget fight



GM sold 224,314 cars and trucks last month. Sales of its Chevrolet Silverado pickup trucks jumped nearly 30 percent, while its Chevrolet Equinox mid-size crossover rose 16 percent.

GM sold 224,314 cars and trucks last month. Sales of its Chevrolet Silverado pickup trucks jumped nearly 30 percent, while its Chevrolet Equinox mid-size crossover rose 16 percent.

For the last several years, automotive sales have helped carry the struggling economy. This time, however, the recovering housing market appears to be giving a boost to the auto industry.

February sales showed unexpectedly solid momentum, automakers are reporting today, despite concerns about recent fuel price spikes and the potential damage that the ongoing budget battle in Washington could cause to a still-fragile economy.

As in recent months, cheap financing and pent-up demand helped propel the car market, but industry analysts say other factors helped drive a roughly 7% increase for February in the sales of new cars, trucks and crossovers.

“The housing sector has now joined auto sales in propelling the U.S. economy forward,” said Kurt McNeil, vice president of U.S. sales operations for General Motors, which reported a 7% increase, year-over-year. “More importantly, the recovery in new home construction is reinforcing the underlying improvement in auto buying conditions, especially for pickups.”

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Domestic makers GM, Ford Motor Co. and Chrysler LLC all reported solid gains for February -- the smallest of the Detroit Big Three reporting its best February in five years – while Volkswagen and Toyota also reported modest sales gains.

Though the overall market was up, the performance varied widely from one maker to another. Two key Japanese automakers, Nissan and Honda, posted small sales declines, as did BMW, while rival Mercedes-Benz reported a 22% sales increase.

“Light vehicle sales have now been running at a mid-15 million unit annual rate since November,” noted GM’s McNeil. And February appears to have maintained that pace, with several automakers indicating they may up their forecasts for the rest of the year – and consequently alter their own production plans.

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The strong performance in the automotive market counters reports of consumer spending cutbacks on lower-priced goods, a potential trend analysts are ascribing to a variety of factors including higher Social Security taxes, the recent ending of a federal payroll tax break and higher fuel prices this winter.

But, “I think these little speed bumps aren’t enough to slow down the momentum right now,” said analyst Jeff Schuster, of LMC Automotive.

Indeed, consumers seemed to shrug off the turmoil in Washington D.C. over the budget, and consumer confidence, a critical element in sales of new vehicles, edged upwards in February, according to recent surveys.

Detroit’s Big Three were looking for solid gains last month, especially GM and Ford, both of which lost market share in 2012. Ford sales grew 9% as the maker posted its best February in six years – with cars up 6%, utility vehicles up 21% and trucks like the big F-Series pickups gaining 4%.

“As more new vehicle buyers continue returning to the marketplace, our fresh new product portfolio of fuel-efficient vehicles is winning over customers,” said Ken Czubay, Ford vice president, U.S. Marketing, Sales and Service. “People are buying our all-new Fusion and Escape in record numbers, thanks to strong fuel economy and innovative new technologies.”

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Despite early forecasts that the company's sales were poised to drop for the month, Chrysler managed a 4% increase compared with sales in February 2012 as the group posted its best February sales since 2008. The maker’s Dodge, Ram Truck and Fiat brands each posted year-over-year gains. The Dodge brand’s 30% increase was the largest sales gain of any Chrysler Group brand in February.

Chrysler CEO Sergio Marchionne last month had cautioned pointed out that first-quarter volumes will likely be off from the same period in 2012 due to the company’s numerous product launches. These include the 2014 Jeep Grand Cherokee, Jeep Compass and heavy-duty Ram. The Jeep plant in Toledo, Ohio also cut production as it ended the run of the old Liberty model to convert over for the launch of the all-new Jeep Cherokee.

“In spite of a cautious ramp up of some of our most popular products which limited inventory last month, we still managed to record our strongest February sales in five years and our 35th-consecutive month of year-over-year sales growth,” said Reid Bigland, Chrysler’s director of U.S. Sales. “Looking ahead, we expect to get our inventory gaps corrected over the next 90 days resulting in additional products contributing to our growth.”

Chrysler Group finished the month with a 71-day supply of inventory, slightly higher than the industry norm – and an apparent build-up meant to offset the impact of its current production slow-down.

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Initial indications suggest each of the Detroit makers should gain some share for February at the expense of the Japanese, with only Toyota among that country’s big marques showing a sales gain last month.

“Despite rising gas prices, severe winter storms and concerns about the federal budget, February was a good indication of the overall strength of the market,” said Bill Fay, group vice president and general manager, Toyota Division. “With the most fuel efficient full line of vehicles, Toyota is well positioned and we’re encouraged by very positive consumer reaction to our new Avalon and RAV4.”

Volkswagen reported a 2.9% increase over prior year sales during February. It was Volkswagen’s best February since 1973.

"February's sales results and 30 consecutive months of growth reflects increasing consumer interest in our products," Jonathan Browning, president and chief executive officer of the Volkswagen Group of America.

"There is a lot of intensity in the marketplace," added Browning, who noted carmakers, in general, have picked up their advertising and incentives in order to set up the traditionally strong spring selling season.

The intense competition in key segments, including compacts, midsized sedans and entry-luxury models appears to have taken the biggest toll on foreign-owned brands like Nissan, Honda and BMW. Honda also blamed fierce winter storms for its 2% sales drop.

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Little Subaru, which has posted a steady string of annual sales records, even through the recession, fared better than any of its big Japanese rivals – perhaps because it has a strong reputation for slogging through the worst weather conditions in its key Snowbelt markets.

Porsche, posted the market’s biggest gain for the month, sales surging 31% year-over-year. And both Korean makers, Hyundai and its sibling Kia, eked out modest gains.

U.S. industry sales figures for February appear to have come in at a 15.5 million units Seasonally Adjusted Annual Rate, or SAAR.

"Any industry over 15 million units is a strong industry," said VW’s chief American executive, and would mark a big jump from the 14.5 million vehicles sold in 2012.

The strongest factor behind the industry surge appears to be “strong pent-up demand from consumers and businesses that have been holding off on buying a new car for years,” said Jesse Toprak, Senior Analyst for TrueCar. “Even with the rise in gas prices, demand for new cars (appeared to reach) the highest SAAR since December 2007,” or Seasonally Adjusted Annual Rate, explained Toprak.

TrueCar estimated that rebates and other incentives rose a modest 1.8% from January to February, to an average $2,392 per vehicle. But that was still down 3.9% compared to the typical giveback a year earlier.

Meanwhile, Toprak forecast that transaction prices – what consumers actually paid for the typical vehicle in February after adding in options and subtracting discounts and other incentives -- will likely be “nearing record levels” for February at an estimated $30,958.

Paul A. Eisenstein contributed to this story.

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