Domestic vehicle sales in May were far stronger than expected, helped by market share battles, five months of interest rate cuts, the return of the Dow Industrials and prospects for tax relief, dealers say.

Most reported a solid recovery from a lackluster April, with many tracking a best year

to a near best year. Paul Taylor, chief economist for the National Automobile Dealers Association (NADA), said Wall Street analysts have been forced to upwardly revise their sales estimates for 2001 - and will likely continue to do so. Taylor said his own expectations remain at 16.3 million cars for 2001, which would be the third-best year ever for auto

sales.

Taylor said his primary concern about the economy is the direction of the jobs market, where any further deterioration could

further hurt car sales. Nevertheless, he predicted that fourth quarter vehicle sales would rebound strongly as a result of ongoing interest rate cuts.

Best Performance Yet Relative to Year-Ago Sales

In May 2001, U.S. light vehicle sales were 1.2 percent below year-ago sales. May sales had the smallest shortfall since sales dropped below year-ago rates in October 2000, according to industry analysts Frost & Sullivan.

Sales by Nationality of Nameplate

As a group, North American nameplates were the only ones to see a sales decline from May 2000, dropping 5.9 percent. Japanese nameplates were up 4.5 percent, Korean nameplates were up 34.1 percent (building on a small base), and European nameplates were up 10.6 percent.

Days Supply

Although inventories dropped in the month to May 1, days supply rose because of weak sales in April. (Days supply is calculated as vehicles on hand at dealerships, factory lots, ports of entry, and in transit, divided by the previous month's daily selling rate.)

This is a statistical quirk that is likely to be reversed next month, according to Frost & Sullivan. Dividing May 1 inventories by May sales yields an overall days supply of 59.7, close to the normal supply. Automakers have worked down the high inventories with which they were burdened earlier in the year.