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Look at May Auto Sales - No Wonder the Stock Market Is Up

DETROIT ( TheStreet) -- Forecasters see auto sales rising 3% to 7% this month, with the sales pace the highest it has been this year. They also see little impact so far on GM (GM - Get Report) sales from the automaker's 14 million U.S. recalls this year.

The sales growth comes as the stock market is reaching record levels, underscoring the long relationship between the two, which is unsurprising given that both indicators track confidence in the economy's future.

Trends in the Dow Jones Industrial Average have correlated with trends in the seasonally adjusted annualized sales number 78% of the time since 2007, said analyst Jesse Toprak. "This year we had a couple of months earlier in the year when they did not correlate, but over longer periods of time, in a series of months, we have never seen it not play out," he said.

Various forecasters including Toprak estimate the May SAAR at 16.1 million, "near the strongest of this cycle," wrote JPMorgan analyst Ryan Brinkman in a report issued Tuesday. A year earlier, the March SAAR was 15.4 million.

"A 16.1 million reading would also represent the third straight month above 16 million and would suggest a strengthening in the underlying rate of demand rather than mere release of pent-up demand following unusually harsh winter weather in January and February," Brinkman wrote.

Toprak said bad weather and lower-than-expected stock market performance hindered sales in the first quarter. "I think we have a bit of delayed demand being realized, and also very generous incentives in the marketplace because of the pile up of inventory," he said.

As for GM, Cars.Com said it expects the automaker will post a 3.4% sales increase in May, slightly below the industry average of 4.1%. As a result, "their market share has shrunk," Toprak said. "In the short run, they won't be hurt too badly, but typically a year after a major recall there is a bit of a decline. What will happen from this point on depends on how much GM truly owns up to the issues and also on the experience customers have at the dealership when they take their car in."

Brinkman, however, wrote that he sees "no impact from GM's recent spate of recalls on either industry sales or GM or rival market share."

Kelley Blue Book said Wednesday that May new car sales should rise 6.7%, wtih GM sales rising 7.1% and a SAAR of 16.1 million. TrueCar also foresees a May SAAR of 16.1 million and expects light-vehicle sales to rise 5.5% from the same month a year earlier, with incentives spending up 0.7% from the same month a year earlier. "The industry is back to the level we expected at the beginning of the year," said Larry Dominique, TrueCar executive vice president, in a prepared statement.

GM's sales in May should rise about 6% year over year, TrueCar said. The firm also forecasts that Chrysler will gain 13.4%, with Ford (F) down 0.8% and Volkswagen down about 4%. The other top four manufacturers were all up about 6%, with Toyota (TM) up 6.3%. GM's market share rose marginally to 17.6%, up from 17.5% a year earlier, TrueCar said, even though GM incentive spending declined 6.6% during the same period.

Meanwhile, J.D. Power also expects the May retail selling rate to be at 13.2 million units, the highest since May 2004. Affiliate LMC Automotive also foresees an overall May light-vehicle SAAR of 16.1 million. "The anticipated strong performance in May reflects the combination of strong underlying demand coupled with a quirk of the industry sales calendar, with the May sales month containing five weekends, compared with just four weekends last May," said analyst John Humphrey in a prepared statement.

Written by Ted Reed in Charlotte, N.C.

To contact this writer, click here.

Follow @tedreednc

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