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Memorial Day Sales Events to Put Industry on 14.2 Million Pace, Says KBB

May 24, 2012

IRVINE, Calif. — Holiday weekend sales could carry the market for May and beyond, with sales anticipated to jumpstart further economic growth in the auto industry, Kelley Blue Book said today.

The provider of new and used car information projects new-vehicle sales to approach 1.4 million units, putting the seasonally adjusted annual rate (SAAR) at 14.2 million units. If the prediction holds up, the industry would realize a 30 percent year-over-year improvement in sales. Adjusted for the two additional selling days this month and a major car-selling holiday weekend, sales are projected to show a 20 percent gain,  the most pronounced year-over-year gain in more than 12 months.

"At this point, it is almost as if the tail is wagging the dog," said Alec Gutierrez, senior market analyst of automotive insights for Kelley Blue Book. "During a typical post-recession recovery, we would expect to see auto sector gains being driven by broad economic growth. In the first quarter, the opposite was true, as auto sales were the primary driver behind GDP growth and have consistently been a bright spot in an otherwise slow-paced recovery."  

Vehicle sales accounted for half of the 2.2 percent increase in the first-quarter gross domestic product (GDP), highlighting the fact that economic growth largely has been driven by increases in production and revenue generated by automotive manufacturers. Although Kelley Blue Book expects a significant increase in sales relative to May 2011, it is important to consider the context behind the relatively mild pace of sales at this time last year. Aging vehicles, improved access to credit and historically low interest rates are among the primary factors driving demand this year, which analysts expect to continue.

Last year, Toyota and Honda were hit hard by inventory shortages stemming from the March 11 earthquake in Japan. Both company's anemic inventory levels during popular Memorial Day sales events muted the usual sales bump expected in May 2011. Toyota and Honda's shortfall led to a 3.7 percent decline in sales this time last year, curtailing the strong growth exhibited through the first four months of 2011. Kelley Blue Book expects 2012 to be much different, as the industry appears to have ample inventory to meet the anticipated uptick in demand.

"With inventory shortfalls no longer a concern, budget-conscious consumers will look to incentives and advertised sales events to help narrow their purchase decisions," Gutierrez said. "Car shoppers will be pleased to find plenty of incentives available in terms of cash, finance and lease offers for a number of popular models. The most attractive offers are for those vehicles expected to be redesigned later this year, including the Nissan Altima, Honda Accord and Ford Escape."

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