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Major automakers posted July U.S. sales that ticked higher from the slump of recent months, but failed to dispel doubts about the strength of the economy and the mood of American consumers.
"We're seeing that the consumer confidence is pretty fragile right now because of everything that's happened in the past few months," General Motors Co's (GM-N) U.S. sales chief, Don Johnson, told reporters on a conference call.
GM's U.S. sales in July rose about 8 percent, while those at Ford Motor Co and Fiat-controlled Chrysler increased 9 percent and 20 percent, respectively.
High unemployment and concern about the strength of the U.S. recovery could force automakers to offer consumers more generous incentives that sap profits, analysts said.
Monthly car sales figures are among the first snapshots of consumer demand each month. Consumer spending habits are of particular interest after last week's tepid increase in U.S. second-quarter output and sharp downward revision for the first quarter.
The auto industry also is coming off May and June sales that fell short of economists' predictions, raising concerns about the recovery. Analysts said higher pricing by many automakers backfired at a time of penny-pinching consumers.
Thirty-nine economists polled by Reuters were expecting an annual sales rate in July of 11.8 million vehicles.
That pace would still trail the 13 million-plus rate from earlier this year, but many industry executives said it would mark the beginning of a recovery from a bottom in June, when the rate was 11.45 million.
The numbers are a far cry from the almost 17 million averaged from 2000 to 2007, before the deepest U.S. economic downturn since the Great Depression and the bankruptcies of GM and Chrysler in 2009.
'TOUGHER THAN A CHEAP STEAK'
Chrysler's U.S. sales chief, Reid Bigland, called the market "tougher than a cheap steak."
At the start of the year, analysts had forecast a bounce back in 2011 sales to between 13 million and 15 million vehicles, but the March earthquake in Japan that led to production cuts and the weak economy changed that picture.
On Tuesday, GM and Ford reiterated their outlooks for the low end of the 13 million to 13.5 million range, including about 300,000 in medium and heavy truck sales. However, GM's Johnson said "a real cloudy economic outlook" had hurt consumer sentiment.
"It will continue to recover although more gradually than we had anticipated in the second half," he said.
Consumer nervousness was reflected in the Commerce Department's announcement Tuesday that U.S. consumer spending unexpectedly fell in June to post the first decline in two years.
The U.S. housing market's strength is critical for the more profitable full-size pickup truck sales, but Ford U.S. sales analyst George Pipas said a recovery is more a matter of if than when.
"Last I heard, the housing market was still on wounded knee," he said.
Industry research firm Edmunds.com said to appeal to those consumers, automakers may boost incentive spending. In July, automakers raised such spending by about 8 percent over June.
Japanese brands already increased incentive spending about 25 percent to $1,990 US per vehicle from June to July, compared with a 4.5 percent rise to $2,919 per vehicle by the U.S. automakers, according to Edmunds.
While the U.S. level is 47 percent higher than the Japanese rate, the difference is far below a year ago when it was a 69 percent gap, suggesting Johnson and his U.S. peers may resort to priming the incentive pump, Edmunds said.
"I'm sure Ford and the domestic folks will have to follow," said Gary Bradshaw, a portfolio manager with Hodges Capital Management, which owns Ford shares.
GM Tuesday posted an 8-percent sales gain to almost 215,000 vehicles on stronger demand for compact vehicles including the Chevrolet Cruze car and Equinox crossover.
GM said July sales of cars and crossovers rose 8 percent and 20 percent, respectively, showing a continuing tilt toward vehicles with smaller profit margins than full-size pickup trucks, which fell 3 percent.
GM, which was previously criticized for its bloated inventory of big pickups which stood at 122 days at the end of June, now expects to end the year at 90 days. That is down from the 100 to 110 days it previously forecast and closer to the 80 days typically preferred by the industry.
Johnson said GM's goal is not to resort to discounting to drive truck sales.
Ford sales rose 9 percent due to stronger demand for its Fusion and Fiesta cars, as well as the small Escape sport utility vehicle.
Both GM and Ford said supply of smaller cars and crossover vehicles was constrained by an inability to make enough.
"The consumer is telling us that they need two more than we can make," Ford's U.S. sales chief Ken Czubay.
Chrysler sales jumped 20 percent, while those at Nissan Motor Co and Hyundai Motor Co rose 3 percent and 10 percent, respectively. Sales at Toyota Motor Corp and Honda Motor Co, still recovering from the aftermath of the earthquake, fell 23 percent and 28 percent, respectively.