Cash for clunkers increases auto sales

DETROIT -- Lured by the government's cash for clunkers campaign, car and truck buyers started returning to showrooms last month as Ford Motor Co. reported its first U.S. sales increase in nearly two years and other major automakers said sales showed signs of stability.

Hyundai and Subaru joined Ford in the plus column. Chrysler, which had been the worst-performing of the major automakers, managed a single-digit decline in July. If converted to an annual rate, overall industry sales could top 10 million cars and trucks for the first time in 2009.

As recently as 2007, car and light truck sales topped 16 million vehicles, but the recession, tight credit and a lack of consumer confidence sent sales plunging late last year.

Ford, led by the redesigned midsize Ford Fusion, and strong sales of the Escape crossover vehicle and F-series pickup line, offered encouraging signs for industry analysts who predicted a modest improvement in the second half of the year.

July sales of Ford, Lincoln and Mercury light vehicles rose 1.6 percent from the same month last year. It was the first year-over-year increase since November 2007. Ford sold 158,354 vehicles, a 2.2 percent increase over June's figures.

Meanwhile, crosstown rival Chrysler Group LLC posted a smaller year-over-year sales drop compared with recent months. The Auburn Hills automaker, which emerged from bankruptcy protection earlier this year, said its sales fell 9.4 percent and received help from heavy incentives and the cash for clunkers program.

General Motors Co., which joined Chrysler in bankruptcy court for a time, said its July sales fell 19 percent from last year. But that figure was weighed by a 47-percent drop in sales to fleet customers such as rental car companies. Retail sales fell a smaller 9 percent.

Officially called the Car Allowance Rebate System, or CARS, the program offers owners of old cars and trucks $3,500 or $4,500 toward a new, more fuel-efficient vehicle, in exchange for scrapping their old vehicle.

Congress approved the plan early in July, but the government considered suspending it Thursday after an overwhelming response threatened to deplete the $1 billion allocated for the rebates.

But the program continued and the House voted to allocate another $2 billion to keep the sales going. The program's fate hangs on whether the Senate will vote to extend more funds this week.

Cash for clunkers drove a surge of shoppers into dealerships over the last week, stunning automakers and dealers and overwhelming the program's website. The Obama administration pressured the Senate on Monday to speed more funding to the program, which is rapidly blowing through its initial funds.

Officials said the program is succeeding in improving the efficiency of vehicles on the road. One official said the average fuel economy of new vehicles purchased through the program was 25.4 miles per gallon and the average fuel efficiency of the trade-ins was 15.8 mpg, representing a 9.6 mpg fuel economy increase.

The clunkers program boosted Ford's sales despite concerns about whether it would be suspended during the final two sales days of the month. The program was expected to boost industry sales overall, which were down 35 percent in the first half of 2009.

Subaru of America Inc. said its U.S. sales increased 34 percent in July on sizable sales improvements for most of its models. Hyundai said its sales jumped 12 percent, while Toyota Motor Co., whose sales have taken a beating in the downturn, posted a slower sales decline of 11 percent.

Tom Libby, an independent Detroit-area auto analyst, said the government rebate program provided a big shot in the arm to automakers at a time when it appeared overall sales may be stabilizing after months of sharp declines.

"It has psychologically been had a huge positive effect for the industry, which is what it needed," Libby said.

But it remains unclear whether customers will keep buying cars when the program is over, he said. Often, demand falls off after large incentive programs end.

"Almost without exception, we have seen a drop off," he said.

George Pipas, Ford's top sales analyst, attributed the company's higher sales to its more fuel-efficient products, saying that consumers are drawn toward better gas mileage despite gasoline prices around $2.50 per gallon.

Shares of Ford rose 46 cents, or 5.7 percent, to $8.46 in afternoon trading Monday. Shares of the company have risen steadily since Ford reported a surprise second-quarter profit last month.

Pipas said early indications show that July U.S. sales, when adjusted for seasonality and projected at an annual rate, could hit around 11.5 million vehicles.

Without the clunkers program, July sales probably would have been about the same as June, about 9.7 million, he said.

Industry sales have been running around 9.5 million for the first six months of the year.

GM and Chrysler, which are surviving on a total of $65 billion in government aid, each have said their expenses are so low that they can break even if U.S. sales run around 10.5 million per year.

"There's no question that the clunkers are going to help us get above the 10 million unit mark this month," said Erich Merkle, president of the industry consulting firm autoeconomy.com in Grand Rapids, Mich.

If more money is allocated to the CARS program, then August could also see a boost, and that could keep sales going until employment losses stabilize in the fall and consumers' fears of making big-ticket purchases start to ease, Merkle said.

While the clunkers incentives could pull some sales ahead from later in the year, most people who trade clunkers wouldn't have been looking for new cars without the government incentives, Merkle said.

In the fall, if job losses start to abate, then typical new car buyers who don't have clunkers might come back into the market, he said.

German automaker Daimler AG said its sales in the U.S. fell by 24 percent in July, amid plunging sales of its Smart car and Mercedes-Benz luxury vehicles. Honda Motor Co., Japan's No. 2 automaker, said its U.S. sales fell 17 percent last month. Nissan Motor Co. said its sales dropped 25 percent.