J.D. Power: Strong First Quarter Likely for U.S. Vehicle Sales

Inventory uncertainty could be driving customers to showrooms.

Based on its projections for the rest of March, J.D. Power and Associates is predicting a strong first quarter of vehicle sales in the United States.

J.D. Power projects that March new-vehicle retail sales will come in at 991,900 units, which represents a seasonally adjusted annualized rate (SAAR) of 10.9 million units. The level would bring the selling rate for first-quarter 2011 to 10.7 million units, slightly ahead of the annual forecast of 10.6 million units.

Retail transactions are the most accurate measurement of true underlying consumer demand for new vehicles, according to the Westlake Village, Calif.-based marketing information services firm, which gathers real-time transaction data from more than 8,900 retail franchisees throughout the United States.

"Retail sales in March are exhibiting strength and remain in line with expectations, despite increasing gas prices and falling inventory levels," said Jeff Schuster, executive director of global forecasting at J.D. Power and Associates. "In fact, retail sales in March may be benefitting from the uncertainty around inventory levels, as consumers flock to dealerships to secure their choice of vehicle as availability decreases."

J.D. Power noted that sales of subcompact cars are expected to increase their market share from 3.2% in February to 3.8% in March, while sales of compact cars are expected to increase from 17% in February to 20.4% in March.

Fleet Sales Expected to Drop

Total light-vehicle sales for March are expected to come in at 1.21 million units, which is 9% higher than in March 2010.

Fleet sales in March are expected to decrease to 213,000 units, according to J.D. Power, based on the expectations that Japanese manufacturers will reduce fleet sales and channel that volume to the retail market, due to concerns about inventory shortages.

Fleet volume is projected to be 18% of total sales in March.

Optimistic Outlook

Since vehicle sales in 2011 thus far have been stronger than expected, J.D. Power's outlook for 2011 remains optimistic.

J.D. Power has increased its 2011 forecast to 10.6 million units (from 10.5 million units) for retail sales, a 16% increase from 2010.

The forecast for total vehicle sales remains at 13 million units, which is up 13% from 2010.

"The economy is no longer the primary variable that could impact the total year sales volume, as the industry is now grappling with gas prices at their highest level in more than two years, as well as the potential for widespread shortages in vehicle availability," said John Humphrey, senior vice president of automotive operations at J.D. Power. "While risks remain evident, the industry's condition is much stronger and able to weather external shocks better than it could before the recession."

J.D. Power noted that parts shortages caused by the disaster in Japan are starting to impact near-term production in North America. Without any significant lost volume to date, however, first-quarter production is forecasted at 3.3 million units -- 14% higher than the same period in 2010.

"With the uncertainty remaining high about the full extent of the parts supply situation, North American production could be impacted in the weeks to come," Schuster said. "However, our 2011 production forecast remains at 12.9 million units, as we expect any lost volume would be made up later in the year."

As a result of strong February sales, days' supply at the end of February 2011 fell to 60 days, from 71 days at the end of January, according to J.D. Power. The level of inventory rose to 2.5 million units from 2.2 million units, an increase of 13%.

With the strength of March sales combined with supply constraints from Japanese imports, inventory is expected to continue to fall during the next few months.

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