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US auto sales head to four-year high as buyers regain confidence

Carmakers see move to compact vehicles as fuel prices spike

Gulf News

Detroit A surprising sales gain by General Motors and strong performances by Ford Motor Co and others helped put US February auto sales on track for their highest annual sales rate in nearly four years.

US auto sales in February are expected to rise 15.8 per cent from the year-ago month, spurred by improving consumer confidence and the growing need for drivers to replace their ageing cars and trucks. The gains came even as fuel prices shot up last month.

The annual sales rate, a closely watched industry yardstick, was projected to reach 14.7 million vehicles, JP Morgan said. That would be the best monthly showing since March 2008, before the financial crisis that sent Detroit into a tailspin.

"There are a number of factors that are helping release this pent-up demand," GM's US sales chief, Don Johnson, told analysts on a conference call. "Perhaps the most encouraging sign is that home builders are becoming more optimistic."

Some analysts and industry executives have said that the US auto sector will not recover significantly until US home prices pick up and consumers feel more prosperous.

While US economic data so far this year has been relatively upbeat, some of the gains reflect unseasonably warm weather. Analysts are watching gasoline prices, which early last year contributed to a softening in the economy that nearly pushed it back into recession.

GM, the largest US automaker by sales, said the February sales rate could be as high as 14.9 million vehicles, topping the high end of analyst estimates.

GM's sales were helped in February by a strengthening economy and compact car sales, according to analysts and the company. The same factors helped other carmakers as well.

Stark contrast

Chrysler posted a February US sales increase of 40 per cent compared with the year-ago period. Ford saw a 14 per cent rise, Volkswagen AG was up 42.5 per cent, Kia Motors gained 37.3 per cent and Nissan Motor Co was up 15.5 per cent.

The auto industry is three years into a recovery after a severe slump that led to the bankruptcies of GM and Chrysler in 2009. The US industry was selling nearly 17 million vehicles a year on average in the ten-year period ending in 2007. Last year, the industry sold 12.8 million vehicles.

Short-term fluctuations in fuel prices will not hurt demand for new vehicles this year, but they could influence consumer preferences on what types of cars to buy, analysts said. Sales of Ford's Focus small car more than doubled in February.

But sales of trucks and sport-utility vehicles were better than expected in February, analysts and executives said, despite the fact that gasoline prices on average rose 30 cents per gallon to $3.73 (Dh13.70) last month.

This is in stark contrast to spending habits in 2008 when average gasoline prices first topped $4 a gallon, spurring a "mass defection" from trucks to smaller cars, said Al Castignetti, head of the Nissan brand in North America.

"Every time it happens, up until this point, we've seen the exodus," Castignetti said: "Is the American public being conditioned to accept higher gas prices?"

Auto sales are watched as one of the earliest indicators of US consumer demand and the willingness of Americans to finance big-ticket purchases.