(May 19, 2011) WESTLAKE VILLAGE, Calif. — New-vehicle retail sales are off to a weak start in May as several variables, including gas prices that are nearing historically high levels, have contributed to a significant pullback from the strong showing in April, according to J.D. Power and Associates.

May new-vehicle retail sales are projected to come in at 858,400 units, which represents a seasonally adjusted annualized rate (SAAR) of 9.6 million units. The retail selling rate is nearly 1 million units higher than it was in May 2010, but has dropped sharply from the 2011 year-to-date average of 10.7 million units.

Retail transactions are the most accurate measurement of true underlying consumer demand for new vehicles.

"Retail sales in May are being hit by several negative variables — specifically, high gas prices, lower incentive levels and some inventory shortages," said Jeff Schuster, executive director of global forecasting at J.D. Power and Associates. "As a result, the industry will likely be dealing with a lower sales pace at least through the summer selling season, putting pressure on the 2011 outlook."

Total light-vehicle sales in May are expected to come in at 1,073,000 units, which is 6 percent higher than in May 2010. Fleet sales are expected to be lower in May due to the inventory shortages and are projected to finish the month at 214,600 units, down 8 percent from May 2010.

The outlook for light vehicle sales in 2011 is beginning to bear the risk of the selling pace slowdown that is projected to occur during the next several months. J.D. Power has reduced the forecast for retail sales slightly to 10.6 million units from 10.7 million units. The forecast for total sales remain at 13 million units.

"Uncertainty is the driver of mounting risk to the forecast for light-vehicle sales in 2011, as gas prices hover at or above $4 per gallon and inventory is at very low levels in the small car segments," said John Humphrey, senior vice president of automotive operations at J.D. Power and Associates. "However, the pace of the recovery set in the beginning of the year is expected to resume during the second half of 2011."

Year-to-date North American production is up 12 percent from the same timeframe in 2010. In 2011, 4.3 million light vehicles were produced during the first four months of the year, compared with 3.8 million units built during the same period in 2010.

The earthquake, tsunami and resulting nuclear power plant crisis in Japan have caused numerous production disruptions thus far due to parts shortages for the Japanese manufacturers. This is expected to continue throughout the second quarter of 2011, with more than 400,000 units of production expected to be lost in the short term.

At 54 days' supply, the inventory level at the beginning of May was the same as it was at the beginning of April. However, several small cars and many models imported from Japan remain in very short supply. Inventory will continue to be under pressure during the next few months as manufacturers work to build up the low inventory levels.

The North American production forecast in 2011 has been reduced slightly, with volume now rounding down to 12.8 million units (from 12.9 million units). As the parts situation stabilizes and unaffected manufacturers increase production, most of the lost volume is expected to be recouped during the second half of 2011 at the topline level.