Auto sales up for first time since the recession

DETROIT (AP) - Auto sales rose in the United States last year for the first time since the recession. They're still far from what they were just a few years ago - but that's just fine with the downsized auto industry, which can post profits even if it sells millions fewer cars and trucks.

For the year, new car and truck sales came in at 11.6 million, up 11 percent from last year, automakers reported Tuesday. For December alone, sales were 1.14 million, also up 11 percent from a year earlier.

While the figures have some in the industry talking about a return to the glory days, it's a fragile idea. Rising gas prices or more economic trouble could still shake the confidence of American car buyers.

But for now, executives are optimistic about this year. General Motors, Ford and Toyota all predict sales will come in at 12.5 million to 13 million for 2011. It will take years, analysts expect, to get back to the peak sales of 17 million reached in the middle of the decade.

"The economic downturn has lasted quite a while," says Jessica Caldwell, director of pricing and analysis for consumer website Edmunds.com. "It's going to be slow and gradual rather than a fast bounceback."

Toyota was the only company that sold fewer cars and trucks than in 2009. The company was stung by sudden-acceleration recalls in early 2010 and never fully recovered despite luring buyers with generous incentives. Production problems at its San Antonio plant cut its supply of Tundra and Tacoma pickup trucks, and troubles importing the Prius hybrid also hurt sales. The company lost nearly two percentage points of market share, slipping behind Ford to rank third in the U.S.

"We're coming off what was arguably the most challenging time in our 53-year history," says Don Esmond, senior vice president of Toyota's U.S. operations. He says he is optimistic that sales will rebound in 2011.

U.S. automakers are relieved to have the past two years behind them. When the financial crisis hit in the fall of 2008, car sales plummeted. GM and Chrysler were on the brink of death, saved by a $60 billion government bailout and speedy bankruptcies that helped both companies close plants and eliminate debt. Ford didn't declare bankruptcy or take a bailout, but it closed plants, laid off employees, and worked to lower its overall cost structure.

As a result, those companies can now make money even if sales hover below pre-recession levels.

Over the past two years, many Americans, even those who had enough money to buy a car during the recession, had been wary to commit to monthly car payments, so they put off making such a large purchase. Many opted to repair or make do with what they had.

Those buyers are easing back into the market, replacing aging vehicles. The average vehicle on U.S. roads is now 10.2 years old - the oldest since 1997 and a full year older than in 2007, before the recession, according to the National Automobile Dealers Association.

"With 240 million vehicles out there on the road, a lot of them are going to be ripe for replacement," says Ellen Hughes-Cromwick, Ford's chief economist.

Auto sales peaked in 2005 at 17.4 million and bottomed out at 10.6 million in 2009. The peak was fueled, in part, by big incentives - like the employee-discounts-for-everyone schemes that were popular in the summer of 2005. But those deals may be a thing of the past.

Don Johnson, vice president of U.S. sales for GM, says GM expects sales eventually will creep back up to 15 or 16 million, but not much higher. Car companies have downsized and they're producing fewer vehicles, so they don't have to resort to costly incentives in order to clear out inventory. Also, buyers have been spooked by falling home prices and high unemployment - fears that could have a lasting effect on buying patterns.

Gas prices should go up in 2011, which could change the kinds of cars buyers want. After moving away from large trucks and SUVs when gas prices spiked in the summer of 2008, Americans turned back to bigger wheels in 2010, and SUV and truck sales rose again. Car sales made up 49.8 percent of sales in 2010, while truck sales made up 50.2 percent. And trucks and SUV sales keep growing: In December, they made up 54.3 percent of total sales. That was despite gas prices that topped $3 a gallon.

"Buying behavior doesn't change dramatically unless gas prices change dramatically," says Rebecca Lindland, director of automotive research with IHS Automotive. "If they gradually increase, people adjust."

That's because Americans love their SUVs, says Jesse Toprak, vice president of industry trends and insight for the automotive website Truecar.com. The trend will continue unless gasoline rises above $3.50 per gallon, Toprak predicts.

The figures include only sales made in the United States, and don't count sales made by U.S. automakers in other parts of the world. Globally, auto sales should hit around 65 million this year.

The U.S. car market is considered the most profitable market in the world, because buyers tend to pay higher prices for vehicles and opt for add-ins that bring up the cost.