January Auto Sales Should Build on 2010's Momentum

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New Ford Escape delivered to customerAutomakers by and large closed 2010 on an upbeat note, recording December sales that for many were the best seen in the U.S. since the federal "cash for clunkers" rebate program in 2009. The industry expects that momentum to continue into the new year, as a slowly brightening economy combined with low financing rates and generally stable fuel prices increasingly have put consumers in a buying mood.

"2011 is off to a good start as the continued increase in retail sales from the same time period last year indicates that consumers are coming back to the showrooms," says Jesse Toprak, senior analyst at online buying guide TrueCar.com. "The recovery in auto sales is fueled not only by pent-up demand but also by compelling new products and relative improvements in consumer confidence."

An 18% Rise Over January 2010

Those new products include several models from domestic automakers Ford Motor (F) and General Motors (GM), two of the big beneficiaries of 2010's increase in sales. Ford recently introduced a new Explorer midsize SUV, the most radical remaking of the vehicle since its introduction 20 years ago, and GM is riding on momentum sparked by its Chevrolet Volt plug-in hybrid, Chevy Cruze compact sedan and other models.

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Overall, Toprak sees January auto sales rising about 18% compared to a year ago, with the industry selling slightly more than 825,000 units for the month. That estimate translates into annual sales of 12.71 million vehicles, after adjusting for seasonal variations (known as SAAR). January's SAAR would be slightly higher than December's 12.55 million and significantly up from 10.82 million recorded in January 2010.

Among the automakers expected to record the biggest increase in year-over-year sales are two domestic companies: Ford with a 20% rise, and Chrysler, which Toprak predicts will see its sales soar nearly 28%. Japanese heavyweights Honda Motor (HMC) and Toyota Motor (TM) are also expected to do well, with each increasing sales about 29% compared to January 2009, the analyst says.

A jump in sales at Toyota would be welcome news for the recall-besieged automaker. Having recalled more than 10 million cars worldwide last year for a variety of problems -- mostly to repair defects related to unintended acceleration, the Japanese company started 2011 with yet another big recall last week of some 1.7 million vehicles worldwide to fix fuel leaks.

Typical New Year Slowdown

Other Asian carmakers, including Japan's Nissan Motors (NSANY) and Korean sister firms Hyundai Motor and Kia Motors, are also expected to see increased sales, but at more modest levels, Toprak says.

No automaker, however, is expected to see an increase above December's stellar levels. Overall, Toprak expects industry sales to fall about 28% in January compared to the previous month.

That's because "January is typically the worst sales month of the calendar year," says Jessica Caldwell, senior analyst at Edmunds.com, who is forecasting a similar drop in month-to-month sales for the industry. She expects sales to tally about 661,000 units in January, down from approximately 947,000 last month, and anticipates automakers to record a SAAR of 12.57 million.

Smaller Incentives, Higher Profits

"January's sales figures continue a trend of steady, sustainable growth for the auto industry," Caldwell says. The numbers are even more encouraging, she says, because they were less reliant on deliveries to car-rental agencies and other commercial clients, known as fleet sales and viewed as less profitable than retail sales to consumers.

Both analysts predict that automakers will have spent less on incentives to draw traffic into showrooms in January than December, although incentive spending was likely higher compared to a year ago.

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