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New Car Sales Show Improvement From May

Uptick may indicate slow, steady market recovery

June 26, 2009

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New-vehicle retail sales through the first 17 selling days of June have increased notably from May, indicating tempered but continued recovery in the market, according to J.D. Power and Associates.

New-vehicle retail sales for the month are expected to come in at 789,400 units, which represent a seasonally adjusted annualized rate (SAAR) of 9.2 million units. While this down by nine percent from one year ago, it represents a gain of 14 percent from May 2009.

At the same time retail sales for June were improving from May, fleet sales were falling. As a result, the June SAAR for total vehicle sales remains stable from one month ago.

"Consumer confidence is improving, and market uncertainty is starting to decline, which has made consumers more willing to take advantage of deals on new vehicles," said Gary Dilts, senior vice president of global automotive operations at J.D. Power and Associates. "In addition, sales incentives — including those from Chrysler dealers facing closure — have helped contribute to the upswing."

In light of these signs of market recovery and the expected introduction of a "Cash for Clunkers" program, J.D. Power and Associates is holding its forecasts for 2009 steady at 8.3 million for retail sales and 10.0 million units for total sales.

A more favorable environment in the second half of 2009 could result due to continued sales momentum, improved economic fundamentals and a stronger than expected response to the "Cash for Clunkers" program.

The Cash for Clunkers program would provide financial incentives to encourage owners of older vehicles to upgrade to newer, fuel-efficient ones. While the program theoretically could increase retail sales by as much as 500,000 units on an annualized basis, J.D. Power and Associates forecasts that actual sales increases would be considerably lower due to funding limitations and the duration of the program.

The stipulations of the three-to-four-month long Cash for Clunkers program — which are based on fuel economy improvements and vehicle age balanced with trade-in value — are restrictive and potentially confusing to consumers, thus limiting its potential.

"It remains to be seen if the passage of Cash for Clunkers program will be enough to draw consumers to showrooms and spark sales, but we remain skeptical," said Jeff Schuster, executive director of global forecasting at J.D. Power and Associates.

Recovery in the automotive market could also be hampered by instability and insolvency among vehicle suppliers, according to J.D. Power. Vehicle production is forecast to be as low as 8 million units for 2009. Levels this low have not been seen since the 1980s.

For many suppliers, viability is unsustainable at these levels. With several tier-one suppliers in or approaching bankruptcy, failure of these large suppliers would create a ripple effect among smaller suppliers. In turn, this could cripple vehicle manufacturers' ability to replenish vehicle inventory and hamper prospects for any near-term recovery.

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