By Justin Hyde
DETROIT, May 28 (Reuters) - The U.S. auto industry's traditional spring selling season may have lost its bounce this year, as analysts predict weak new car and truck sales in May despite another round of incentives.
With inventories already swollen and incentives running nearly 50 percent higher than a year ago, poor May sales could trigger more generous rebates and cut-rate loans. Slow sales could also force steeper production cuts by Detroit's Big Three automakers in the third quarter, putting a drag on any U.S. economic recovery.
The average forecast from auto industry analysts puts May's sales at a seasonally adjusted annual rate of about 16 million vehicles. That's above last May's rate of 15.7 million, but below April's pace of 16.4 million. The sales totals will be released June 3.
"The spring selling season continues to disappoint," Merrill Lynch analyst John Casesa said in a research note. "May auto demand appears to be relatively unresponsive to continued incentive support."
Since April, Detroit's Big Three have tweaked incentive offers that were already averaging more than $3,000 per vehicle. General Motors Corp. is offering 72-month loans at 1.9 percent following an offer made by Ford Motor Co. . GM is even allowing current lessees to get a new vehicle six months before their leases expires.
Even foreign automakers have been ratcheting up the incentives. Toyota Motor Corp. is offering short-term, interest-free loans on its Camry sedan, while Hyundai Motor Co. Ltd. has interest-free loans on all its models.
But despite the incentive boom, Detroit auto executives have been more reticent than usual this month about predicting sales, saying the market was too uncertain to offer specific predictions.
DRAINING THE FLOOD
The two traditional economic drivers of auto sales -- unemployment and consumer confidence -- have been moving in opposite directions this month. New jobless claims have risen as the U.S. economy shed half a million jobs between February and April.
But consumer confidence rose in May to a six-month high, buoying stock markets on expectations that consumer spending accounting for two-thirds of the U.S. economy would remain robust.
Along with sales, GM and Ford are expected to announce their first estimates for third-quarter North American production. Given near-record levels of unsold vehicles and tepid results in May, analysts expect a 10 percent, year-over-year production decline at both automakers, with a smaller reduction at DaimlerChrysler AG's Chrysler arm.
Production directly drives profits, so such a large decline may hit the shares of automakers that have seen a rebound in recent weeks, even though many analysts have already worked the cuts into their earnings estimates.
"The combination of disappointing May sales, negative Q3 production headlines, and high inventory is likely to weigh heavily on the automobile and supplier stocks," Goldman Sachs analysts Gary Lapidus said in a research note.