I hear a lot of talk about everyone saying (not just here) that they're not going to buy GM and Chrysler ever again because of the bailout and government involvement but it sure doesn't seem to be the effect (at least yet). We'll see.

Fire-sale prices lift GM, Chrysler

Ford fares best among the Detroit rivals in May. Toyota and Honda see small cars stack up on dealer lots as low gas prices encourage consumers to buy bigger vehicles.
[Related content: GM, economy, manufacturing, automotive, savings]
By The Associated Press

Americans bought more cars in May than in any other month this year, drawn by fire-sale prices that pushed sales by General Motors (GMGMQ, news, msgs) and Chrysler above expectations despite their forays into bankruptcy protection. Overall sales were still 34% lower than a year ago.

But low gas prices encouraged the sale of bigger vehicles while small cars stacked up on dealer lots.

That could be a problem for the Obama administration, if the demand for more fuel-efficient vehicles drops just as it is forcing the U.S. auto industry to produce more of them.

* Tell us: How do you define 'American made'?

"The great migration away from fuel efficiency is once again under way," said Mike Jackson, chairman and chief executive of AutoNation (AN, news, msgs), the nation's largest automotive retailer. "The price of gasoline determines the type of vehicles consumers buy. Period."

All major automakers including Toyota Motor (TM, news, msgs) and Honda Motor (HMC, news, msgs) posted drops from last year, with Ford Motor (F, news, msgs) benefiting from the financial woes of its Detroit competitors and recording the smallest decline, at 24%.
Cheaper gas a blow to imports
GM and Chrysler have pegged their recoveries to fuel efficiency -- Chrysler with small cars from Fiat (FIATY, news, msgs), GM with new American-built compacts and subcompacts, and both with plans for electric vehicles. It could take months of expensive gas for people to buy their new products.

Almost every small-car model saw significant drops in sales compared with May of last year, which was a record month for many models as gas headed for $4 per gallon.

Honda's Civic was off 61%, Ford saw Focus sales drop 54%, and GM's Chevrolet Cobalt was down 52%. Even Toyota's Corolla, the perennial small-car leader, saw sales drop 55%.

Yet sales of Ford's midsize Fusion jumped 9%, with four-cylinder engines making up 70% of the sales. Chevrolet's Malibu sales were down 11%, a far lower decline than the rest of the market.

Jackson said gasoline price instability makes it difficult for automakers to decide what models to produce and dealers to decide which ones to stock.

"I was an idiot last July when I didn't have enough fuel-efficient vehicles, and now I'm an idiot because I have fuel-efficient vehicles," he said in an interview. Jackson advocates a revenue-neutral gas tax increase to keep the price stable at $4 per gallon.

Early in the month, Honda had thousands of Civics stacked up in the lots of a closed Ford plant west of Cleveland, stored there from factories in Ohio and Canada. Many have since been shipped to dealers, the company said.

Jackson said all automakers' small cars suffered, but Honda was hit harder as a company because it is the most fuel efficient.

"Honda is perfectly positioned for $4 per gallon gasoline and is out of favor at $2 per gallon. It becomes a headwind for them."
Buyers unfazed by GM, Chrysler chaos
Jackson said he is changing his dealers' mix to larger vehicles, from midsize cars up to sport utilities, because that's what people want to buy.

But George Pipas, Ford's top sales analyst, said the trend to more efficient vehicles is continuing. Premium gasoline is back to $3 per gallon in California, said Jesse Toprak, executive director of industry analysis for the auto Web site Edmunds.com.

"We know the downsizing of the American vehicle has been taking place for several years and is still going on," he said. "I think the midsize segment does have some appeal, but don't forget fuel efficiency is still key."

Ford said its May U.S. sales fell 24% from last year but rose 20% from April, and its share of the U.S. market rose to the highest level since 2006.

"The winner is still Ford out of all automakers in terms of their May performance and the trending so far this year," Toprak said.

Although Chrysler's sales were off 47%, the decline was about the same as it was in the months before the Auburn Hills, Mich., automaker filed for Chapter 11 bankruptcy protection.

The company said its sales were pulled lower because it didn't sell to fleet buyers such as rental car companies, but retail sales to individual buyers were the best they've been all year.

With 789 dealers set to be severed from the company next week, many of those purchases were encouraged by deep discounts. Chrysler had the highest average incentive among automakers last month -- $4,159 per vehicle, according to Edmunds.

GM, which saw its sales drop 29% in the month leading up to its bankruptcy protection filing on Monday, ranked second in incentives at $3,783 per vehicle. Even Honda, where sales dropped 42%, raised incentives to a record $1,626.

"GM and Chrysler are still outperforming our expectations by a little," Toprak said. "It seems like the fire-sale message came across pretty strong."

But Mark LaNeve, GM's vice president of North American sales and marketing, said GM's incentives were the same as last May.

"We have great competitive deals out there, but with the mere fact that our incentive spending did not go up is evident that we did not, and will not, resort to fire-sale tactics due to any kind of bankruptcy proceedings or discontinued brands," he said on a conference call with reporters and industry analysts.