Good news: strong sales mean US car makers are set to accelerate

Good news: strong sales mean US car makers are set to accelerate

Ford and GM have had a great month, nearly beating the current sales record.

Automakers in the US, such as Ford and GM, are expected to come close to record levels of sales this month. Investors hope good numbers will lift the sector, which is currently languishing thanks to a poor showing in April as well as several embarrassing recalls.

Early projections estimate 1.6 million vehicles were sold in May. According to Edmunds.com, a car buying website, this would mean that the annual rate will be 17.4 million vehicles sold.

“This is going to be one of the best months ever,” said David Kudla, chief investment strategist of Mainstay Capital Management.

Currently, the record stands at $40.3 billion in sales during August 2014. Sales in May are expected to be around $40 billion.

Several factors contributed to the boost in sales. A major reason may be that lower gas prices encourage people to buy sport utility vehicles (SUVs) and trucks, automobiles that are more expensive and have better margins.

Another probably factor is the pent up demand in the US car market. Not only have customers been reluctant to buy a car since the financial crisis, but the excessively harsh winter throughout much of the northern States has scared away many potential buyers.

As always, the start of summer marked by Memorial Day weekend will play a role in bumping up sales.

“Because there was a full week of May after the holiday weekend, shoppers had plenty of time to take advantage of the deals being widely communicated in dealer and automaker marketing messages,” said Jessica Caldwell, senior analyst at Edmunds.com in Santa Monica, California.

Finally, the strong dollar is considered to have a role in the increased sales among average Americans.

While this is good news for automakers, it could be a worrisome indicator for the economy as a whole. Growing consumer strength could finally convince the US Federal Reserve to raise interest rates.

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