Booming car sales bode well for economy

One sector of the economy that is absolutely hitting it out of the park is auto sales.

Car makers on Tuesday delivered some jaw-dropping May sales numbers, with nearly every company churning out numbers that beat analysts' forecasts. Overall vehicle sales are on track to hit 16.8 million units this year.

What a change from the depths of the recession. In 2009, Americans only bought 10.4 million cars and light trucks. Many people were losing their jobs, their mortgages were underwater and their credit was shot. The last thing some families needed was a new car loan.

The silver lining in all that turmoil is that now, there are a lot of aging cars on the road that need to be replaced. The average age of a car on the road hit a record 11.4 years last year, according to data firm R.L. Polk. Car buyers, tired of trips to AutoZone (AZO) and the local mechanic, have been waiting for a pickup in the economy and a break in the winter weather to go shopping at dealerships, and May provided a perfect opportunity.

Analysts, who were expecting the annualized rate of sales to hit 16.1 million in May, expressed surprise at how quickly vehicles are flying off the lot. "In 2009, folks said 17mm/yr would never happen again," wrote Business Insider's Henry Blodget on Twitter.

The strong sales, combined with a report of solid orders for factory goods made in the U.S., are boosting the outlook for economic growth later this year. "This is consistent with other data showing growth bouncing back in the second quarter," Gus Faucher, senior economist at PNC Financial Services Group, told Reuters. "Everything looks set for solid growth in the second half of this year."

Another surprise from the auto sector was the strength of sales at General Motors (GM), despite nearly 14 million vehicle recalls from the company this year. Analysts weren't expecting much, and the company reported a staggering 285,000 vehicles sold -- triple the expectations of some experts.

Clearly, many car buyers were not fazed at all by the GM recalls. In fact, the problem may have helped GM sell more cars in May because it brought people into dealerships.

The rest of the year may not match the booming sales last month. It's traditionally one of the best months for auto sales, while this year good weather also encouraged consumers to visit the dealership. That was perfectly fine with automakers, who are simply thrilled by the rejuvenated business. "Our dealers are preparing for heavy customer traffic in the coming months," said Jeff Conrad, senior vice president at Honda, in a statement.

  • Kim Peterson

    Kim Peterson is a financial journalist covering business and the economy. She has written for several online and print publications, including MSN Money and The Seattle Times.