May auto sales disappoint; demand slows

DETROIT (Reuters) - Automakers posted strong U.S. May sales gains from a year ago, but the sales rate still fell short of expectations as the broader economy softened and gave pause to consumers mulling big-ticket purchases.

The annual selling rate in May finished at 13.8 million vehicles, the first month this year under the 14 million pace and far short of the 14.5 million expected by economists polled by Reuters.

The sales results, when combined with Friday's anemic U.S. jobs report, suggested the industry could face hurdles in its recovery from a recession four years ago that dragged General Motors and Chrysler into bankruptcy. Among the automakers posting disappointing results on Friday were GM, Toyota Motor Corp and Chrysler.

"Obviously, the economy's probably slowing a touch," said Gary Bradshaw, a portfolio manager with Hodges Capital Management, which owns Ford shares. "I still think that car sales will continue to improve from last year, but it's going to be a struggle. There are plenty of headwinds in front of us."

Honda Motor Co Ltd and Nissan Motor Co Ltd also posted weaker-than-expected sales in May, while Ford Motor Co's numbers fell short of what Barclays and Edmunds.com had forecast. Honda, Nissan and Ford's sales rose 48 percent, 21 percent and 13 percent, respectively.

GM's sales rose 11 percent, while those at Chrysler and Toyota rose 30 percent and 87 percent, respectively.

The U.S. industry's overall sales in May finished up 26 percent at 1,334,600 cars and trucks, but the rate at which vehicles were sold translated to an annual pace that was a step down from the 14.4 million recorded the prior two months.

"Since our last monthly sales call over the last 30 days or so, the economic indicators came in just a little softer than in the first quarter," Ford senior economist Jenny Lin said on a conference call.

Some analysts and industry officials have said the lower rate was partly due to the warmer-than-expected weather earlier in the year that drew buyers into dealer showrooms, pulling sales from the spring shopping season. In addition, falling prices at the fuel pump have reduced pressure on consumers to get rid of gas-guzzlers and buy more fuel-efficient cars.

Auto sales have been one of the bright spots in the economy for several months and the monthly sales results offer an early snapshot of consumer demand.

SHAKY RECOVERY

Sales have shot up this year despite cooling consumer confidence and mixed economic data that illustrates how shaky the recovery has been over the last three years. On Friday, the U.S. Labor Department reported job growth in May that was the weakest in a year, and employers added far fewer jobs in the prior two months than previously reported.

On Tuesday, the housing recovery gained traction as U.S. home prices edged higher for the second month in a row, but consumer confidence cooled in May to its lowest level in four months as Americans turned gloomy again about the economy.

"During any recovery you see some signals pointing upward, some neutral, some down," said Jonathan Browning, head of Volkswagen AG's U.S. operations. "While there'll be some short-term fluctuations in those indicators, those underlying trends remain in a positive direction."

One factor fueling the growth in auto sales has been Americans' increasing need to replace their aging cars and trucks, which are now a record 10.8 years old on average.

"The economy will continue to grow slowly and absolutely pent-up demand will be a strong force and will overcome maybe some of the volatility," GM's U.S. sales chief, Don Johnson, said on a conference call. "But the economy has to keep growing at a positive rate for pent-up demand to be released."

Higher fuel prices in the first quarter prompted some consumers to swap older, less fuel-efficient models to lock in fuel savings. According to Swiss bank UBS, 63 percent of dealers said higher gasoline prices increased demand in the first quarter.

With gas prices falling again, the pace of new-car sales may moderate in the second and third quarters, but the underlying consumer appetite for new cars and trucks as a result of pent-up demand remains strong, UBS analyst Colin Langan said.

GM's May sales increased to 245,256 vehicles from 221,192 in the same month last year.

Ford's sales rose to 216,267 vehicles from 192,102 in the same month last year as the No. 2 U.S. automaker boosted consumer incentives by more than 9 percent from the previous month according to Edmunds. Incentives in the overall industry rose almost 4 percent from April to May to $2,135 per vehicle.

Ford also said it plans to build 690,000 vehicles in the third quarter in North America, up 5 percent from the same period last year.

Toyota sales rose 87 percent to 202,973 vehicles. Sales at Chrysler, controlled by Italy's Fiat , rose to 150,041 vehicles from 115,363 in the same month last year.

GM shares were down 1.7 percent at $21.80 late on Friday afternoon after falling as much as 3.4 percent earlier in the session. The stock pared losses after the automaker announced two moves to slash 24 percent of its U.S. pension obligations.

Meanwhile, Ford shares were down 4.5 percent at $10.08. Wall Street stocks were broadly lower on the sour U.S. jobs report.

(Additional reporting by David Bailey; editing by John Wallace, Sofina Mirza-Reid and Matthew Lewis)

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