May sales reflect a boost for auto industry

Automakers reported strong sales in May as improved consumer confidence, lower unemployment and moderate gas prices helped propel sales of pickups and SUVs.

While Autodata reported that sales improved 1.6% vs. the same month last year, the more significant figure was a seasonally adjusted sales rate that would, if it keeps up, puts the industry on pace to sell almost 17.8 million new vehicles. That standard industry measure points to the most torrid sales pace since July 2005, Kelley Blue Book said.

Individual automakers reported mixed results because their tallies were skewed by there being one less selling day last month compared to a year earlier. Among Detroit’s Big 3, GM’s overall sales rose 3% over May 2014, Fiat Chrysler sold 4% more new vehicles and Ford sold 1.3% fewer, Autodata says.

But overall, it was a month of near-record sales that beat expectations. “The auto industry is on fire,” says Eric Lyman, senior analyst for TrueCar. “We’re still seeing that automotive is driving growth in the economy.”

Unlike a decade ago when automakers churned out more vehicles than they could sell profitably, this cycle likely will bring record profits. Here’s why:

Profit- packed vehicles. Not only did automakers sell huge volumes, but they did it in some of the most profitable segments: pickups and SUVs that usually yield higher profit margin because of relatively strong prices and lower manufacturing costs.

Fewer fleet sales. Auto sales can be inflated by big sales to corporate, rental or government fleets, which aren’t as profitable as sales to individuals. But automakers say sales to individuals rose, while fleet sales fell.

Millennials. Lyman says 25% of new car sales last months were to Millennials, who are emerging as a powerful force despite earlier predictions that they were more interested in the next smartphone than the next car.

Overall, “I don’t see any reason for things to slow down,” says Fred Diaz, a Nissan vice president.