Car buyers may be off endangered species list

After a long hiatus, American consumers appear ready to return to auto showrooms to buy new cars, experts say, although not in the large numbers seen in past years.

A rise in new U.S. car sales in coming months would be a welcome development for the nation’s automobile industry. A nasty recession has decimated sales to less than 10 million vehicles a year — a drop of more than 40 percent from past years — and helped force General Motors Corp. and Chrysler LLC to file for Chapter 11 bankruptcy protection.

May sales data appeared to confirm a bottoming in the U.S. car market, however. On Tuesday, Ford Motor Co. reported a 24 percent drop in U.S. sales for May, but sales were up 20 percent from April. GM's sales in May fell 30 percent versus a year ago, but were up 11 percent from April.

“We’re off the bottom,” said auto industry analyst Ken Elias, partner with Maryann Keller & Associates in Scottsdale, Ariz. “People will want new cars because many have deferred purchasing a car since last fall. We think it’s positive for U.S. automakers.”

To be sure, consumers still face strong economic headwinds that could quell new car purchases, including rising unemployment, rising home foreclosures, and continued stinginess among banks and other financial institutions over lending money.

That said, experts are optimistic about stronger new car sales on the horizon. They point to:

• Renewed consumer confidence about the economy.
• Signs that the overall economy may be bottoming out.
• The recent surge in stock markets.
• A greater willingness by banks and other financial institutions to lend consumers money.
• Pent-up demand for new car purchases.
• “Fire sale” prices by car dealers who are going out of business.

“There are more people looking at and seriously researching new car purchases,” said Karl Brauer, editor in chief at Edmunds.com, the car-information Web site. “There’s a sense among a lot of people that we’ve hit bottom and the economy will be coming back.”

Renewed buying interest will likely come gradually and shoppers will likely favor smaller vehicles than in the past, especially if gasoline prices creep back toward $4 a gallon.

Brauer noted that increased traffic on the Edmunds.com Web site typically signals an increase in car sales 30 to 90 days down the road. Among other things, Brauer singled out strong interest among people who are going to the Edmunds.com site to learn more about buying a new car.

“The good news is that retail demand has seemed to stabilize over the last quarter,” said Alan Baum, director of research and analysis at The Planning Edge in Birmingham, Mich. “There’s clearly a lot of pent-up demand.”

The annual rate of car sales in the United States so far this year has averaged less than 10 million units vs. 13.2 million for all of 2008. Analysts say a rate of less than 10 million annually is unusually low and unsustainable.

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