Chrysler, VW, report sales up in February, but pace of growth slows

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The Chrysler Jefferson North assembly plant is shown in Detroit, on Sept. 20, 2012. THE CANADIAN PRESS/AP, Paul Sancya

DETROIT - Chrysler's U.S. sales rose 4 per cent last month from a year ago and Volkswagen sales were up 3 per cent as both automakers reported strong February sales.

But both companies are still see their sales growth slow after outpacing the U.S. market for the past couple of years.

Chrysler had its best February in five years, with just over 139,000 cars and trucks sold. VW reported its best February since 1973 with sales of more than 31,000. Industry analysts expect an overall increase of around 7 per cent when automakers report U.S. results Friday, as sales remained strong despite some headwinds for consumers.

At Chrysler, which reported a 21 per cent sales increase for all of last year, the growth slowdown was expected. CEO Sergio Marchionne warned last month that first-quarter sales would decline from the same period of 2012, largely because the company stopped making the Jeep Liberty midsize SUV as it prepares a factory in Toledo, Ohio, to build a replacement model. The new Jeep Cherokee is expected to hit showrooms in the summer.

Still, the company reported its 35th-straight month of year-over-year sales gains.

Auto industry analysts say that Social Security tax increases, rising gas prices and political dysfunction in Washington, weren't enough to keep buyers away from showrooms.

"I think these little speed bumps aren't big enough to slow down the momentum right now," said Jeff Schuster, senior vice-president of forecasting for LMC Automotive, an industry consulting firm.

Schuster and other analysts say there are plenty of reasons to buy cars:

— People need to replace aging cars. Pent-up demand is driving sales, as is the expiration of two- and three-year leases.

— Interest rates are at historic lows, and credit is more readily available.

— Hiring has picked up, giving people more money to spend. Hourly pay has risen faster than inflation the past three months.

— Many automakers have exciting new vehicles to choose from, both trucks and fuel-efficient small cars.

Schuster says sales probably hit an annual rate of 15.2 million cars and trucks in February, which is normally a lacklustre sales month. The TrueCar.com auto pricing site predicts 15.7 million, which would be the best February performance since 2007. Sales are still short of the recent peak of near 17 million in 2005, but they're healthy now compared with the anemic 10.4 million total in 2009.

Matt LaFontaine, general manager of the LaFontaine Automotive Group, an 18-franchise chain in the Detroit area, said all of his dealerships that sell Detroit-based brands will beat their projections for the month.

"The biggest thing for us is just making sure we have enough product on the ground." Customers, he says, "are ready to make a move."

LaFontaine said the budget debate in Washington hasn't cut into auto sales. Congress and President Barack Obama aren't likely to reach a last-minute agreement before $85 billion in automatic government spending cuts kick in Friday.

Higher gas prices also haven't hurt sales. The average price for gas rose 36 cents per gallon in February to around $3.78 per gallon. In fact, sales of larger vehicles like pickup trucks have improved, Schuster said. Consumers have also shrugged off higher Social Security taxes, which cut take-home pay starting in January. For a household making between $70,000 and $100,000 per year, it cost around $300 per month, which is close to a car payment.

Barclay's analyst Brian Johnson said the tax increase has had little impact on new-car buyers, but it may hurt used-car sales because those buyers are more price-sensitive.

Automakers are spending less on discounts and deals, which cut into their profits and brand image. Discounts in February averaged $2,392 per vehicle, down almost 4 per cent from a year ago, TrueCar said.

But low interest rates are offsetting that, LaFontaine said. The average four-year auto loan has a 2.5 per cent interest rate, according to Bankrate.com. That's about half of what it was five or six years ago. On a $20,000 loan, that means a monthly payment of $438, down $23 from a 5 per cent loan. Plus, automakers offer subsidized loans to spur sales, many with no interest.

And some consumers have no choice but to buy. The average vehicle on U.S. roads is a record 11.2 years old. Many car buyers are being forced to replace aging vehicles after hanging on to them through the Great Recession.

At Chrysler, sales were led by the Dodge Avenger midsize sedan with a 52 per cent increase. Ram pickup sales were up 3 per cent for the best February since 2007 as businesses replaced older pickup trucks.