• by Karl Greenberg , March 23, 2012

We are closing in on the end of the first quarter, and -- at least from the auto industry perspective -- it's looking a hell of a lot better than last year, which was a lot better than the year before, obviously. 

According to stats gathered by J.D. Power & Associates' Power Information Network of dealership activity and the company's LMC Auto division, the quarter is likely to close with 1.086 million units delivered. If the firm is in the ballpark, this will be the highest monthly volume in more than two-and-a-half years. And the Westlake Village, Calif.-based company points out what's probably obvious to dealers: retail transactions are the most accurate measurement of true underlying consumer demand for new vehicles.

“Each month of strong sales brings with it increased optimism that the pace of growth represents a true recovery for the sector,” said John Humphrey, SVP global automotive operations at J.D. Power and Associates, in the report. “Barring any future shock related to geopolitical issues in the Gulf region and further upward pressure on the price of oil, we believe sales will continue on a solid pace for the balance of the year.”

Ironically, gasoline prices (and a proliferation of smaller vehicles) are driving at least part of this quarter's activity at dealerships: the firm says that in the first 18 days of March, subcompact and compact cars accounted for approximately 23% of retail sales in the United States -- the highest level since the government's CARS incentive program launched in 2009. 

J.D. Power says that combined, subcompact and compact cars were on dealer lots an average of 42 days before being sold, compared with 48 days industry average. Anything under 60 days to turn is considered tolerable. These days-to-turn numbers are 17 days fewer for subcompact cars and 46 fewer days for compact cars. 

“Small car mix is benefiting from higher gas prices and new models entering the segment, with 41 small car models in the market in 2012 compared with just 30 back in 2007,” said Jeff Schuster, SVP of forecasting at LMC Automotive, in a statement. “Overall share of small cars in 2012 is expected to climb to its highest level ever, at nearly 20% of total light-vehicle sales. By contrast, full-size pickup trucks are now waiting on dealer lots for owners an average of 68 days -- 11 days longer than they were a year ago.

Looking at March alone, J.D. Power says total light-vehicle sales for the month will likely be around 1.4 million units -- a 6% increase from March 2011, although increases in fleet sales, at 21% of the month's sales, account for some of that. 

What this means for the whole year should be pretty good news for the business. J.D. Power sees the first-quarter rate extrapolated to the full year pegging 11.6 million units for retail and 14.4 million units for total light vehicles. That new outlook beats earlier full-year forecasts by 200,000 units for retail and 300,000 units for total light vehicle sales.

Said Schuster: “The vigorous start to 2012 suggests that there is further upside potential if the current pace continues through the summer months.”