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Strong auto sales without big cash rebates

Mitchell Hartman Jun 2, 2015
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Domestic and foreign automakers report their U.S. sales for May 2015 on Tuesday, and the numbers are expected to show an improving trend for the year. April’s annualized sales of cars and light trucks hit the 16.5 million level. The consensus among economists is for May’s sales to hit 17 million.

U.S. auto sales have been rising after bottoming out at 10.4 million in 2009. If the anticipated pace for 2015 continues, it will be the best year for vehicle sales since 2000.

Auto industry equity analyst Ephraim Levy at S&P Capital IQ says automakers are not driving sales by massive discounting. “We’re close to near-record levels in terms of average transaction prices for vehicles,” Levy says. “And recently, the incentive levels have been declining year-over-year. Higher prices and lower incentives [are] good.”

That scenario is good for automakers, because it supports higher profits and demonstrates that consumers are being enticed to buy with quality and new features, not cash rebates and below-market financing.

Consumers can do well in this environment too, says Greg McBride at Bankrate.com. In addition to low interest rates for car loans, says McBride, “with more people working, and gas prices down from one year ago, we continue to see a robust car-sales environment. Those that had put off buying a car in recent years jump back in the market.”

SUVs and pickup trucks are hot right now — Jeeps, Ford F-150s and Chevy Silverados. That reflects a strengthening construction industry — contractors need big vehicles — and consumers’ expectations that gas prices will remain low for a while.