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Consumers on 'auto' pliot. But can solid car sales last?

June 13, 2012: 1:15 PM ET

Ford and other automakers have reported decent sales this year. But investors have reason to be worried about a slowdown in the U.S., Europe and China.

Stocks were flat Wednesday morning and one reason was the disappointing retail sales report for May. (Traders may have also been transfixed by JPMorgan Chase (JPM) CEO Jamie Dimon on Capitol Hill.) But if you dig behind the scary headline numbers, i.e. that sales were down for a second-straight month, you'd notice two key (and related) things. Gas prices are lower and auto sales are up.

The sharp decline in gas prices means that less money is spent at the pump. That's a good thing ... even though it translates into lower overall retail sales in the government report. The pullback in gas prices is also clearly a positive for the auto makers and is probably one reason why car and truck sales were up.

But can this last? The good news for GM (GM), Ford (F), Chrysler, Toyota (TM), Honda (HMC) and other big automakers is that gas prices are likely to keep falling as long as crude oil prices continue to slide.

Although GM CEO Dan Akerson spent much of Tuesday's shareholder meeting apologizing for the stock's performance since its initial public offering -- is it the Facebook (FB) of autos? -- investors do seem more optimistic about GM as of late. It's solidly profitable again and the stock is up 9% in 2012, outperforming the broader market. Toyota's stock has done even better this year, surging 15%. However, Honda has lagged a bit and Ford's stock is actually in the red this year. The auto stocks, like the rest of the market, have all pulled back from their highs earlier this year.

But Ford may arguably have the best news of all for shareholders. The company resumed its dividend earlier this year and its debt is now deemed investment grade by two of the three top credit rating agencies. Getting out of junk status allowed Ford to reclaim its iconic Blue Oval logo and other assets that it had pledged as collateral a few years ago when it took out big loans.

For now at least, Wall Street is still expecting this year and next to be solid for Detroit's Big 3 as well as their Asian rivals. Analysts are forecasting low single-digit sales growth for Ford and GM in 2012, which is impressive when you consider how high gas prices were earlier this year. And revenue growth is expected to accelerate to the mid-high single digits for Ford and GM in 2013. Toyota's sales are expected to increase by more than 10% in this fiscal year and next while analysts are predicting nearly 20% top line growth for Honda this fiscal year.

Related: The comeback of the American car

James Swanson, chief investment strategist with MFS Investment Management in Boston, noted in his firm's mid-year outlook earlier this week that rebounding auto sales were one of the brightest spots for the U.S. economy.

But the bad news for automakers is that worries about lower global demand seems to be the reason for falling oil and gas prices.

Investors are concerned that the escalating European debt crisis (will all five of the PIIGS wind up getting bailouts?) will lead to slower growth in China, the U.S. and the rest of the world. Needless to say, a worldwide economic slump will probably mean lower auto sales.  And while auto sales were up in May, they did fall short of forecasts.

That has Morgan Stanley auto analyst Adam Jonas worried. Jonas wrote in a report Tuesday that if "auto sales don't improve materially in June" his full-year forecast for the industry will be "at risk." Jonas added that a more troublesome sign is that auto manufacturers may be reacting to near-term weakness by stepping up incentive programs and other initiatives to lower vehicle prices.

"A recent discussion with Ford management and feedback from publicly traded auto retailers suggest such incentives are damaging to the auto environment by putting volume ahead of value and customer service," Jonas wrote.

So automakers are, like the rest of the corporate world, in a tough spot right now. If they need more gimmicks to get people into the showrooms, that's not good. And any continued boost from cheaper gas prices can only go so far. Lower commodity prices are something to cheer ... until they get too low.

Remember the end of 2008 and early 2009? The average price for a gallon of gas nationwide was near $1.61 a gallon, less than half of what it was now. But those weren't exactly happy times for consumers ... or the Big 3.

At its 2009 low point, Ford's stock cost less ($1.50) than a gallon of gas. And GM and Chrysler were soon to be bankrupt. Nobody wants to return to those dark days.

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Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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