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New-Car Sales On Track for Best March in 5 Years

This month is on track to mark the best March seen for new-car sales in five years. And as gas prices continue to rise and consumers continue to cash in tax-returns, the demand for fuel-efficient vehicles might be bringing shoppers out to the lots this spring.

Predicting the demand for new cars to continue to remain solid during the rest of 2012, Kelley Blue Book forecasts new-vehicle sales to reach 1.425 million units this month for a 14.6 million seasonally adjusted annualized rate.

This monthly sales figure would be a 24-percent gain from last month and a 14-percent climb year-over-year.

At more than 1.4 million units predicted to sell, this would also mark the highest number of units sold for any March since 2007, when industry sales topped 1.5 million units overall, Kbb.com noted.

And what is the company's reasoning behind this predication?

KBB expects this month to garner significant sales because of not only the high consumer demand for fuel-efficent models, but also an interest in "popular redesigns", such as the Toyota Camry. The company also cited improving supply conditions and attractive finance opportunities as reasons behind a potential sales surge.

Commenting on the projected sales rate, Alec Gutierrez, senior market analyst of automotive insights for KBB, had this to say: "Although we anticipate strong sales in March, it will fall short of the 15.1 million SAAR posted last month

"Sales in February were aided by unseasonably warm weather across the United States and an additional selling day due to the Leap Year, triggering a strong seasonally adjusted sales rate that will not likely repeat this year," he continued.

"Conditions in the economy have generally been positive through the first few months of the year, and if conditions remain steady, the industry can expect to see continued strength in sales for the months ahead. Rising fuel prices could slow down the current momentum in sales growth if left unchecked, so this will be a key factor to monitor moving forward," he further explained.

And according to a monthly forecast developed by J.D. Power and Associates and LMC Automotive, a strong March will make for new-vehicle retail sales to end the first quarter of 2012 on a high note.

And though their projection for March was slightly lower than that of KBB's, it still comes in above the 1 million mark. The two companies projected that new-vehicle retail sales will reach 1,085,800 units, the highest monthly volume in more than two-and-a-half years. This would represent a SAAR of 11.6 million units.

And as for total light-vehicle sales, these are expected to come in at 1,372,400 units, which is a 6-percent increase from March 2011.

The company also noted what contributed to this potential rise.

"In addition to the strong retail performance, fleet mix has been higher than normal for the first two months of the quarter, with January and February averaging 24 percent. March is expected to finish slightly lower at 21 percent of total sales," officials explained.

"Each month of strong sales brings with it increased optimism that the pace of growth represents a true recovery for the sector," said John Humphrey, senior vice president of global automotive operations at J.D. Power.

"Barring any future shock related to geopolitical issues in the Gulf region and further upward pressure on the price of oil, we believe sales will continue on a solid pace for the balance of the year," he continued.

Consumers Turn to Gas Sippers

And in some perhaps not surprising news, with fuel prices above $3.80 per gallon nationally and as high as $4.40 per gallon in California, compact, fuel-efficient vehicles have been flying off the lots, contributing to March's sales success so far.

J.D. Power reported that through the first 18 days of March, subcompact and compact cars accounted for approximately 23 percent of retail sales in the U.S., the highest level since the CARS program was implemented in 2009.

And as a result, they are leaving dealers' lots much quicker.

Combined, subcompact and compact cars were on dealer lots an average of 42 days before being sold. This can be compared with the 48 days industry average and turn rates substantially lower than in 2011 — 17 fewer days for sub-compact cars and 46 fewer days for compact cars, J.D. Power reported.

On the other hand, consumers seem to be losing interest in bigger units, such as full-size pickup trucks, as the winter ends and warm weather arrives.

Full-size pickup trucks are sitting on dealer lots an average of 68 days, 11 days longer than they were a year ago, according to J.D. Power.

And this trend is likely to continue.

Kbb.com found in a recent survey of in-market car shoppers that 51 percent of respondents are now considering a smaller, more fuel-efficient vehicle. Another 20 percent responded, saying they are considering an alternative-fuel vehicle, such as diesel of hybrid.

"Subcompact car sales will be especially strong, since they are the most affordable vehicles in the marketplace today," said Gutierrez.

"Not only are they cost effective, but the subcompacts available for sale today are of significantly higher quality than those offered just a few years ago. The Ford Fiesta, Hyundai Accent and Chevrolet Sonic are new introductions that are reshaping the segment, while consumers also can look to traditional segment leaders such as the Honda Fit, Toyota Yaris and Nissan Versa for something more familiar," naming a few fuel-efficient options that consumers have to choose from.

Which OEMs Will Take Biggest Piece of Market Pie?

According to Kbb.com, with the one year anniversary of the tragic tsunami in Japan just past, Toyota and Honda have steadily regained market share during the past several months, and the company expects this trend to continue through March.

In February, Toyota and Honda accounted for 13.9 percent and 9.6 percent of all February sales, respectively, which marked a considerable rise from their 2011 lows.

And as inventory levels are on the rise for those two Japanese OEMs, KBB expects both brands to continue to have significant gains with their fuel-efficient offerings, including the newly redesigned Toyota Camry, Honda Civic, and of course, the 50-mpg Prius.

That said, two of the Big 3 are expected to come out on top in sales by the end of this month.

General Motors is expected to sell 256,500 units and hold 18 percent of the market, compared to 16.6 during the same period of 2011. And Ford is predicted to follow closely behind, selling 225,000 and holding 15.8-percent market share.

North American Production on the Rise

And in perhaps some good news for franchised and independent dealers alike, North American light-vehicle production through February is up nearly 23 percent, compared with the same period in 2011, according to J.D. Power and LMC Automotive.

And BMW leads the European manufacturers in year-to-date production volume increases, up 42 percent, the companies reported.

Though Japanese OEMs are still in recovery mode following last year's natural disaster, their production volume is up 26 percent year-to-date in February when compared to the same period of 2011.

And the Big 3 have enjoyed an increase in inventory, as well. They enjoyed approximately a 20-percent year-over-year increase in production volume, according to J.D. Power and LMC Automotive.

Overall, production levels are expected to remain at a higher level in the first quarter of 2012, with volume forecasted at 3.8 million units, up almost 15 percent from the first quarter of 2011, according to the companies.

And as for second quarter production, an increase of 18 percent from last year is expected, with nearly 3.7 million units to be built, the companies reported.

Moving along, vehicle inventory declined to a 57-day supply at the beginning of March, compared with a 66-day supply at the beginning of February. Car inventory is at below-normal levels with a 48-day supply in March, down from 60 days in February, while truck inventory levels fell to a 66-day supply (previously at 72 days), according to the companies' report.

"Given the robust level of demand to date in 2012, overall inventory levels are back in check (under 60 days)," officials noted.

"LMC Automotive is increasing its North American production outlook for 2012 to 14.2 million units (up from 14.0 million units) to keep pace with the higher level of demand," they concluded.

How is 2012 Shaping Up?

And lastly, J.D Power and LMC Automotive touched on how March's expected sales, coupled with consumer demand and high production levels, will affect the year as a whole.

"The 2012 outlook for vehicle sales remains positive, as the first quarter selling rate is expected to come in at 11.6 million units for retail and 14.4 million units for total light vehicles," the companies reported.

This sales rate is apparently ahead of the forecast for the full year of 11.4 million units for retail light-vehicles and 14.1 million units for total light vehicles, officials explained.

"The first quarter selling rate has outperformed the annual forecast for sales for the first time since 2008, when the automotive market started to decline," said Jeff Schuster, senior vice president of forecasting at LMC Automotive.

"The vigorous start to 2012 suggests that there is further upside potential if the current pace continues through the summer months," he concluded