U.S. auto sales beat expectations, setting up strong March

DETROIT (Reuters) - U.S. auto sales in February were slightly brisker than expected as hefty incentives lured customers into dealerships late in the month despite cold and snowy weather.

Still, the chilly temperatures were enough to pressure last month's sales, which are expected to be up only slightly from the year-ago month, automakers said.

General Motors Co said it expected industrywide U.S. auto sales of 15.4 million vehicles in February on an annualized basis, matching a forecast of analysts polled by Reuters.

The frost on sales for January and February will thaw in March as temperatures rise and customers return to showrooms in greater numbers, said Karl Brauer, autos analyst with industry research firm Kelley Blue Book.

However, several analysts said that high customer incentives, the discounts to lure buyers into showrooms, in late February will carry over into March, cutting in to companies' profit.

Larry Dominique, executive vice president of industry research firm TrueCar, said there are about 80 days of supply on dealer lots, compared with a more desirable level of 60 to 65 days.

"We have on average two-and-a-half months of supply on dealer lots," said Dominique, adding that most automakers have not cut production, which will lead to even more oversupply, which will increase pressure to raise incentive levels further.

Dominique pointed out that companies book the sales for their balance sheets on the wholesale level, so "every field agent for every manufacturer" is going to press dealers to take more vehicles when they are already oversupplied.

Monthly auto sales are typically an early indicator of consumer demand. But January and February are usually two of the slowest sales months every year.

OLD HABITS DIE HARD?

"The fear is going back to the old ways of having to sell the deal and not the car after years of staying clean," said Jesse Toprak, chief analyst for research firm Cars.com. "(Dealers) don't want the companies to fall off the wagon when it comes to incentives."

For now, the incentives are not out of control, but Toprak warned, "it might get a bit out of control this summer and beyond if the pace of inventory accumulation does not slow down."

Industrywide, the average incentive in February was about $2,633 per vehicle, up 5 percent from a year earlier and up 3.3 percent from January, according to TrueCar.

Partly offsetting the higher incentives was a 3.6 percent rise in average transaction prices, or the figures at which autos are sold.

MARCH SEEN STRONG

Unlike January and February, March is often one of the best months for U.S. auto sales. The fact that March has five weekends also bodes well for the U.S. auto industry, said John Felice, Ford's U.S. sales chief.

"Despite all the challenges, it was a robust market," Felice said of February, "and we feel that as we head into March we'll be in very good shape."

GM's U.S. sales in February dipped 1 percent but easily beat analysts' expectations of a 6 percent slide, with sales of 222,104 vehicles.

While GM's Malibu, Cruze and Sonic passenger cars each posted double-digit gains, sales of the company's top-selling Chevy Silverado pickup truck fell 12 percent.

Ford Motor Co slightly beat expectations by posting U.S. sales of 183,947 vehicles, down 6 percent from a year earlier. Ford is the second-largest in the U.S. market by sales.

GM and Ford, which ranks second in the U.S. market, are offering some of the heftiest incentives.

Toyota Motor Corp <7203.T>, the No. 3 seller in the U.S. auto market, saw February sales fall 4 percent at 154,866 vehicles, widely missing expectations of no change from a year ago.

Topping analysts' expectations were Chrysler Group and Nissan Motor Co <7201.T>.

Chrysler, a unit of Fiat Chrysler Automobiles , said demand for its two top-selling Jeep models, the Grand Cherokee and the Cherokee SUVs, had helped push its total monthly sales up 11 percent to 154,866 vehicles. Analysts had expected a rise of 8 percent.

Sales of Chrysler's top-selling vehicle, the Ram pickup truck, increased 24 percent.

Nissan showed a gain of 16 percent, led by a 73 percent jump in sales of its Rogue crossover vehicle. Analysts had expected an increase of 12 percent.

Volkswagen AG reported U.S. sales of 27,112, down 14 percent. Its best-selling vehicle, the Jetta, had sales of 11,908, down 0.5 percent.

GM shares were down 0.2 percent at $36.12 and Ford shares were down 1.8 percent at $15.11 on Monday afternoon on the New York Stock Exchange.

(Editing by Lisa Von Ahn and Matthew Lewis)