Auto Sales Slowing as Americans Doubt Recovery

When it comes to car shopping, Americans are tapping the brakes.

Forecasters think U.S. sales of cars and light trucks have slowed in June after months of improvement. It's another sign that people are beginning to doubt the economic recovery with unemployment still high.

"The two big issues with consumers right now are employment growth and income growth, and they're not seeing much of either," said George Pipas, Ford Motor Co.'s top sales analyst.

Three firms that track auto sales predict automakers will report a sales decline of anywhere from 9.5 to 12 percent from May to June when they turn in their figures on Thursday. A double-digit decline would be the biggest monthly drop since January.

There is good news for shoppers: If sales keep falling, automakers will be more tempted to try to lure car buyers in with low-interest financing, rebates and sweet lease deals.

The U.S. economy has been sending mixed messages for months, but lately the signs are worse. Last week, the government lowered its estimate for first-quarter economic growth because people spent less than previously thought. On Tuesday, a widely watched index showed a jarring drop in consumer confidence, with June down nearly 10 points.

Unemployment has been stuck around 10 percent all year. While the pace of layoffs has slowed, the number of people seeking first-time unemployment benefits is about the same as in January. And sales of new and previously owned homes fell last month.

All this makes potential car buyers uneasy.

"People are just nervous about signing up for a three-year loan, so I think people who normally would've cycled out of a car a little sooner are deciding, 'Hey, I'll just drive this car for another year,'" said Tom Folliard, CEO of used-car dealership chain CarMax Inc.

Automakers sold 1.1 million vehicles in May, the best month so far this year. J.D. Power and Associates, Truecar.com and Edmunds.com are predicting that June sales will drop below 1 million.

At that number, sales would be well below a typical June over the past five years, which is 1.3 million, and far below the peak during that period of almost 1.7 million in 2005, according to Ward's AutoInfoBank.

If the weakness continues into summer, automakers will have to sell more to rental car companies and other fleet buyers. Otherwise, sales won't be too much better than last year's dismal 10.4 million, the lowest since 1982.

"With the recovery not progressing as expected, it's gut-check time for the automotive industry," said Jeff Schuster, executive director of global forecasting for J.D. Power.

J.D. Power expects a decline in sales to individuals. If that happens, automakers will be tempted to lower prices with big sales promotions - good for drivers but bad for the industry's bottom line.

One big change from a year ago could help automakers: They generally have kept inventories low after going through the trauma of restructuring in bankruptcy court. Recently, though, they have raised factory production.

Still, Bob McInerney, vice president of a Toyota dealership north of Detroit, has noticed a drop in the number of customers out looking for cars. He blames economic fears. The first two weeks of June were quite slow, although sales have picked up lately as he's pushed deals.

"It seems like people are conditioned to buy the last two weeks of the month," he said.