FREDERICK, Md. -

Discussing the drop in May new-vehicle results on Tuesday, Ellen Hughes-Cromwick, chief economist at Ford, revealed that consumer demand remains as strong as it’s been in recent years; however, dealers are struggling with new-model inventory shortages, as well as high gas prices impacting consumer preferences.

“Most of the weakness in sales in May was associated with a lack of supply of vehicles that people wanted but weren’t at the dealer stores,” she said.

These factors, as well as others, are ultimately putting pressure on sales.

While the general consensus appears to be that the Japan disaster’s impact on U.S. auto sales will likely be more limited than initially expected, dealers are still facing supply issues.

Both Hughes-Cromwick and Ira Silver, National Auto Auction Association economist, were featured in a NAAA Webinar this week.

Silver noted that large declines in new, retail and used sales during the recession has created an overwhelming demand as the economy recovers.

And while sales were generally strong leading up to May, this month saw sales fall 1.5 percent compared to April, due in large part to supply shortages.

“There were two supply shocks hitting the industry in May, the first was associated with supply disruption from the Japan disaster,” Hughes-Cromwick chimed in. “The second supply shock was the run-up in fuel prices which heightened the demand for high fuel efficient vehicles; as a result, the marketplace had a supply constraint.

Small cars represent nearly 21 percent of all vehicles sold year-to-date; such a high number makes it even harder for dealers to meet demand for fuel efficient vehicles, Hughes-Cromwick noted.

And while dealers might be frustrated, the news isn’t all bad. Both Toyota and Honda expect production levels to bounce back, which in turn, could help dealer sales later this year.

Silver noted that improved economic and credit conditions will support the automotive industry’s recovery, yet high unemployment rates will still keep the industry from getting yearly retail sales back to 16 or 17 million units.

Moreover, Hughes-Cromwick stressed the fact that she is seeing a higher percentage of vehicles on the road in comparison to population numbers — which will help the industry recovery.

Based on Census data, the average driving population is growing and will hit 5.7 billion from 5 billion globally by 2020, a 15-percent growth rate.

The auto industry might even see an uptick in full-size pickup truck sales due to growing household formation in an expanding economy. The number of new households is expected to rise to a typical level of 1.3 to 1.5 million per year until 2016.

“This will have very important implications for the pickup truck sales market,” predicted Hughes-Cromwick.

The full-size pickup truck share of the market (currently 10.3 percent year-to-date) will rise due to construction and an aging fleet, noted Hughes-Cromwick.

Moving along to the utility vehicle segment’s share of the market, crossovers are gaining ground, coming in at 23 percent year-to-date due in part to these units high fuel efficiency.

Overall, in terms of retail sales, the automotive industry is recovering as the economy recovers, but with an industry forecast of 13-13.5 million sales for this year and 15 million for 2012. According to both Silver and Hughes-Cromwick, it will be quite a while before the industry returns to its pre-recession heyday.

What does this all mean for the auction industry?

Moving over to the auction industry, the economy continues to improve but the expansion has done little to help fill the auction lanes.

The auction industry lags the retail industry because of lack of sales in recent years, said Silver.

During the recession, low retail sales led to a low amount of units hitting the auction lanes; now, the auctions are suffering the consequences, noted Silver.

The number entering the lanes has not picked up much since the recession, stressed Silver, with continued drop-offs occurring in vehicles entering auction lanes as well as auction sales. 

“The auction industry is recovering but is still way below previous levels,” said Silver.

Moreover, auction prices have risen significantly with an increase of 3.9 percent in 2009 and 5.6 percent in 2010.

Silver warns this is not necessarily good news. Higher auction prices reflect a lack of supply, not a recovering industry, noted Silver. As supply gets even smaller this year, Silver and Hughes-Cromwick both expect auction prices to continue rising, though not as significantly as the past two years.