Auto Sales at 5-Year High but Auto Shares Slump

DETROIT ( TheStreet) -- Domestic auto sales apparently reached their highest level in five years in March, propelled by rising high sales and a strong stock market.

Yet ironically, the Detroit automakers have not participated in the year's stock market gains. Rather, Ford ( F) shares are down about 2% and GM ( GM) shares are down about 5%, while the S&P 500 is up about 10%. It's no secret that the ailing European economy is holding the shares back.

"The biggest factor weighing on these companies is Europe," said S&P Capital Markets analyst Efraim Levy, in a recent interview. "As you get more clarity on a turnaround in Europe, on if that will happen and when, it will relieve pressure on the stocks. In the U.S., both companies are doing well and are gaining market share."

Automakers are expected to report Tuesday that March sales reached about 1.5 million units, the most since May 2007. Strong trends mean that on Monday, raised its 2013 light-vehicle sales forecast to 15.5 million units, which would be the highest sales total since 2007.

Jefferies analyst Peter Nesvold said the month's overall sales gain should be about 4%, with Ford sales up about 5%, GM up about 12% and Chrysler up about 3%.

"Car shoppers seem unfazed by fiscal issues in the news," said Edmunds economist Lacey Plache, in a prepared statement. "Even though consumer confidence has been up and down so far this year, there are 'wealth effects' that are making Americans feel comfortable finally buying the new cars they've been waiting for."

Plache said rising home prices and the strong stock market are the principal contributors to the wealth effect. Additionally, the labor market is improving gradually and credit has been loosening.

Looking ahead to the second half of the year, Edmunds said, the pace of car lease expirations in the second half of the year should be higher than in the second half of 2012, which could put more car shoppers in the market.

-- Written by Ted Reed in Charlotte, N.C.

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