AHEAD OF THE BELL:
Auto sales stay sluggish

[ [July 03, 2012]  DETROIT (AP) -- U.S. auto sales are slowing, but carmakers aren't panicking.

June sales, which will be reported later Tuesday, are expected to stay at the same slower pace as May. That's because worries about jobs and incomes caused some potential buyers to back away.

For the most part, though, analysts are sticking to their forecasts for improved sales this fall. Underlying demand remains strong, and new models like the Ford Escape and Dodge Dart -- which arrived in dealerships last month- will draw out buyers.

"Although this softer sales rate may persist over the next few months, we believe that 2012, like 2011, will finish out strongly," Barclays analyst Brian Johnson wrote in a recent note to investors.

Earlier this spring, sales were on track to reach 14.5 million this year. The pace dropped to 13.8 million in May and is expected to stay below 14 million in June.

Sales in the first four months of this year were boosted by mild weather and the post-earthquake return of Japanese inventories. But since then, the economic picture has gotten cloudier. In June, employers scaled back hiring and manufacturing shrank for the first time in nearly three years. Consumer confidence -- which needs to be strong for buyers to invest in new cars -- fell for the fourth straight month.

The news isn't all worrisome. Sales for June are expected to grow to 1.2 million new cars and trucks, about 20 percent over last June, when few Japanese cars were available. While that's down from May, it's still one of the highest monthly volumes since the recession began.

If sales come in at 13.8 million for the year, they would be stronger than the 12.8 million in 2011. And they'd be much stronger than the 30-year low of 10.4 million during the recession in 2009.

"Despite a rising level of uncertainty with the economic recovery, consumers remain resilient in their willingness to purchase new vehicles," said Jeff Schuster, LMC's senior vice president of forecasting at LMC Automotive. Shuster is still expecting 2012 sales of 14.5 million.

There continues to be a lot of demand from buyers who bought cars in the middle of the last decade and need to replace them, Barclays' Johnson said. Annual sales hit a high of 17 million in 2005, and those cars are now seven years old.

Low interest rates and better credit availability will also lure buyers. The average interest rate on a 60-month new-car loan is now 4.5 percent, down from 6.98 percent two years ago, according to Bankrate.com.

"The affordability of cars is probably at an all-time high," Chrysler Group sales chief Reid Bigland said last week.

[Associated Press; By DEE-ANN DURBIN]

AP Auto Writer Tom Krisher contributed to this report.

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