Automakers See Little Flinching by Buyers If U.S. Cuts Spending

March 1 (Bloomberg) -- Automakers led by General Motors Co. and Ford Motor Co. predict demand for cars and trucks, on pace for the best year since 2007, will remain resilient even if the U.S. is unable to avert automatic spending cuts starting today.

Vehicles on U.S. roads are the oldest on average in history, and Americans will continue to look to replace them with more fuel-efficient models also equipped with better technology features, the automakers’ sales executives said today. Ford reported its best February sales in six years.

“It’s inevitable there might be a slight, slight offset, but I think the positive factors” that are boosting auto demand “will overcome,” Ken Czubay, Ford’s vice president of U.S. marketing, sales and service, said today on a conference call.

While most automakers reported sales gains in February, many missed estimates, so U.S. light-vehicle deliveries may have climbed less than the 3.7 percent average estimate of 10 analysts, which projected 1.19 million sales. The annualized sales rate, which is adjusted for seasonal trends, was projected to match January’s pace of 15.3 million, the average of 15 analysts’ estimates, up from 14.5 million a year earlier

Ford’s deliveries of cars and light trucks last month climbed 9.3 percent, GM’s jumped 7.2 percent, Toyota Motor Corp.’s increased 4.3 percent and Chrysler Group LLC’s rose 4.1 percent, according to company statements.

The average estimates of 11 analysts were for gains of 9.8 percent by Ford, 4.9 percent for GM and 4.4 percent for Chrysler. GM and Chrysler, majority owned by Fiat SpA, said separately their February sales were the best in five years. Toyota was projected to report an 8.5 percent increase, the average of eight analysts’ estimates.

U.S. Standoff

Democrats and Republicans are in a standoff over how to replace the cuts, known as sequestration, totaling $1.2 trillion over nine years. Of that total, $85 billion would occur in the remaining seven months of this fiscal year. President Barack Obama today called on Congress to halt the “slow grind” on the economy that would result by passing an alternative that closes tax loopholes and cuts spending, including entitlements.

“There’s a lot of discussion about Washington right now, but we still feel that the fundamentals are strong and are going to continue,” Kurt McNeil, vice president of U.S. sales operations, said today on the company’s conference call.

GM rose 0.6 percent to $27.30 at 12:53 p.m. in New York trading, while Ford climbed 0.5 percent to $12.67. The Standard & Poor’s 500 Index increased 0.3 percent.

Sales dropped 2 percent for Honda Motor Co. and 6.6 percent for Nissan Motor Co. in February. The averages of eight analysts’ estimates was for a 0.7 percent increase for Honda and a 3.3 percent decline for Nissan.

Credit Environment

New-car buyers, shunned by lenders just four years ago, also are now benefiting from historically low interest rates and better availability of financing. Auto sales rebounded from the U.S. recession that ended in 2009 more quickly than housing did, boosting the economy as volumes approach pre-recession levels.

Banks reported the most common rate for a 48-month new-car loan was 4.82 percent in November, the most-recent reporting period. The rates have dropped from more than 7 percent before the Fed lowered its target interest rate to zero in December 2008 and began large-scale asset purchases to boost growth.

“People quite frankly have become completely numb to that whole budget issue,” Al Castignetti, Nissan’s vice president of U.S. sales, said in an interview, adding that consumers will “absolutely not” pull back in March as a result of the automatic spending cuts. “Consumer confidence is on the rise. People are taking advantage of the low interest rates.”

‘Keep Buying’

GM, the largest U.S. automaker, forecast a 15.5 million light-vehicle sales pace for the industry in February. While Auburn Hills, Michigan-based Chrysler also forecast a 15.5 million industry sales pace for February, that projection includes medium- and heavy-duty vehicles, which typically account for at least 200,000 deliveries per year.

“I think people will keep on buying,” Sergio Marchionne, Chrysler’s chief executive officer, said yesterday after disclosing $374 million of investments to boost production of transmissions in central Indiana. “For me to express a view on that ritual would be nonsensical. I’m not part of it, nor do I think it’s going to have a negative impact” on industry sales.

Ford’s has said its outlook is for about 2 to 2.5 percent growth for the U.S. economy this year. Full implementation of the sequestration may represent a drag of about 0.5 percent of growth in gross domestic product, Ellen Hughes-Cromwick, Ford’s chief economist, said today on the company’s call.

In spite of the potential headwind, Ford plans to boost second-quarter production to 800,000 vehicles in North America, from 737,000 a year earlier.

Consumers’ Nerves

“Consumers may have a little bit of nerves of steel in light of the sequestration,” Hughes-Cromwick said.

GM reduced its inventory of full-size pickups to 97 days’ supply, down from 117 at the end of January, according to its e- mailed statement. Sales of Chevrolet Silverado pickups rose 29 percent in February while GMC Sierra surged 25 percent.

The company is preparing to introduce redesigned Silverado and Sierra pickups in the second quarter. GM said last month it planned to take out 10 weeks of truck production.

Large pickups comprise one of the main sources of profit for GM, Ford and Chrysler. Ford’s F-Series pickups recorded a 15 percent gain last month while Chrysler’s Ram rose 3.1 percent.

Chrysler’s Dodge brand sales surged 30 percent as the Dart compact, introduced in June, set a monthly record of 7,720 deliveries. Chrysler’s sales have increased 35 consecutive months, matching its longest streak since one that ended December 1994.

Volkswagen AG posted an 8.2 percent increase in combined sales for its VW and Audi brands, trailing the 9.2 percent average of four analysts’ estimates.

Combined sales for Hyundai Motor Co. and Kia Motors Corp. declined 2.5 percent last month to 93,816, the first monthly drop for the affiliates’ total deliveries since August 2010. The average estimate of six analysts was for a 5.1 percent decrease. Hyundai’s sales grew 2.3 percent and Kia’s slipped 7.8 percent, the Seoul-based companies said in separate statements.

--With assistance from Mark Clothier and Keith Naughton in Southfield, Michigan, and Alan Ohnsman in Los Angeles. Editors: Jamie Butters, Bill Koenig.