Auto Sales Expected to Show Slowdown in May

General Motors Corp. (GM) and Ford Motor Co. (F) bore the brunt of slowing U.S. vehicle sales in May, hurt by high gas prices and flagging demand for sport utility vehicles, analysts said this week.

The slowdown could force GM and Ford to announce more profit-eroding second-quarter production cuts of new cars and trucks when automakers report their May U.S. sales results Wednesday.

Japanese automakers -- Toyota Motor Corp. (search) , Nissan Motor Co. Ltd. (search) and Honda Motor Co. Ltd. (search) -- have been relentlessly grabbing market share from the two leading U.S. automakers, which are heavily reliant on gas-guzzling large and mid-sized SUVs for profits.

Apart from high fuel prices, the weakness in sales of GM's and Ford's SUVs stems, at least in part, from new competition from the Japanese brands as well as competition from their own less gas-thirsty smaller SUVs, Burnham Securities analyst David Healy said in a note to clients.

Most analysts expect GM's sales to slip anywhere from 2 percent to 7 percent, while Ford sales are forecast to slip as much as 5 percent. It would be the 12th consecutive monthly decline for Ford.

The expected loss of more U.S. market share will be another setback for GM and Ford, which are both battling rising health-care and raw material costs and the impact of recent debt rating downgrades to "junk" status.

The Detroit automakers, onetime industrial icons, are expected to post significantly weaker earnings this year; Ford said its core automotive operations may not turn a profit.

Analysts estimate that lower sales could force GM to cut second-quarter production further by as much as 2 percent; Ford could trim its output by as much as 3 percent. Ford has already cut its second-quarter vehicle output by 5 percent and GM has slashed production by 10 percent.

Production levels are closely watched because automakers book profits on vehicles when they are shipped from assembly plants, not when they are sold on dealers' lots.

Auto parts suppliers have suggested that the traditional summer plant shutdowns, usually planned for the first two weeks in July, could be pulled forward, JPMorgan analyst Himanshu Patel said in a note to clients Friday.

Automakers are also expected to set their forecasts for third-quarter North American vehicle production when they report sales, and GM's third-quarter output could also be at risk, analysts said.

Sales across the auto industry are expected to weaken to a seasonally-adjusted annual rate of 16.5 million to 16.6 million, analysts said. That would be down considerably from a rate of 17.4 million last month and 17.7 million last May.

"This month's softer sales might also be reflecting the prevailing economic headwinds -- higher gasoline prices, slowing GDP growth, weakening consumer confidence, higher car loan rates and slowly rising car prices," Burnham Securities' Healy said.

DaimlerChrysler AG's Chrysler Group, however, is expected to continue its sales gain in May, analysts said.

Sales at the German automaker's Chrysler unit could rise about 2 percent in May, Merrill Lynch analyst John Casesa said in a research note.

Toyota and Nissan are again expected to post stronger results, with one analyst estimating that each could show a gain of more than 17 percent.

Honda, on the other hand, may see a decline in May, Casesa said.