U.S. Auto Sales Bolstered by Buyer Rush for Cash for Clunkers Opportunity

Cash for Clunkers

DETROIT/PARIS August 3, 2009; Kevin Krolicki and Helen Massy-Beresford writing for Reuters reported that U.S. auto sales jumped to their highest level of 2009 in July as Americans rushed to take advantage of a government incentive to trade in old cars and trucks, raising hopes the battered sector is poised for a recovery.

Ford Motor Co posted a 2 percent sales increase, its first gain since late 2007 and the first for any of the major automakers since the financial crisis exploded after the bankruptcy of Lehman Brothers.

Automakers credited the U.S. government's runaway success of the U.S. government's $1 billion "Cash for Clunkers" program with lifting industry-wide sales back above 11 million units on an annualized basis tracked by analysts.

The program, modeled on similar efforts by European governments, had offered consumers taxpayer-funded rebates of up to $4,500 to swap out of older, less fuel-efficient cars.

The incentive pushed U.S. sales in the final week of July back to levels last seen in 2007 and exhausted the full $1 billion first allocated for the program.

The sudden boom in the last week of July also encouraged investor expectations that major automakers will be forced to restart production in the coming months.

"I think this is the greatest one-week stimulus program ever to come out of Washington or anywhere else," said Ford's chief sales analyst George Pipas.

Government measures in Europe to boost demand also bolstered car sales in that region for July. French sales were up 3 percent, Italian sales gained 6 percent but sales in Spain posted a slower decline.

Nearly half the vehicles sold under the U.S. government's clunker incentive program in July were made by General Motors Co, Ford and Chrysler, according to data released on Monday.

On a year-over-year basis Chrysler posted a 9-percent sales decline for July. On that basis, GM sales were down 19 percent.

Among major Japanese automakers, sales for Toyota Motor Co were down 11 percent; Honda Motor Co was off 16 percent and Nissan Motor Co sales fell 25 percent.

LOOKING UP

GM chief sales analyst Mike DiGiovanni said the automaker, now majority owned by the U.S. government, expected the broad economy would get a lift if the Senate approves another $2 billion in funding for the clunkers incentive.

GM estimated that boost to the economy at a contribution of 0.5 percentage points in growth to third-quarter GDP.

Some analysts have questioned whether the U.S. government program could leave the industry facing a painful payback in lost sales once it expires, but others said it could give the market needed breathing room as the economy stabilizes.

"We still need this even if there is pull-ahead to give time to the industry and the economy," GM's DiGiovanni said.

Erich Merkle, forecaster at Autoconomy.com, said he expected auto sales would end 2009 at just over 10 million units but rise by as much as 30 percent in 2010.

"It is our belief that the traditional new car buyer will start to make their presence know later this year, backfilling when 'Cash for Clunkers' is over," he said in a note.

INVENTORIES LOW

Inventory levels across the U.S. market dipped lower than major automakers' targets at the end of July as popular models began to run short on dealer lots.

Ford declined to say whether it would increase output but said its inventory fell to 50 days supply. For Nissan, the comparable measure of inventory fell to 45 days.

Expectations that production will have to gear up as automakers build more vehicles in the months ahead contributed to sharp gains for shares in auto parts suppliers on Monday.

Shares of American Axle jumped 27 percent. Shares of Dana Holding Corp, a major Ford supplier, gained 21 percent.

Governments in all major European markets have also stepped in to help carmakers with their own scrappage schemes.

Italian car sales rose 6.16 percent year-on-year in July, the transport ministry said.

In Spain, in July, car sales fell 10.9 percent compared with July 2008, carmakers' association ANFAC said.

In France, passenger car sales were up 3.1 percent in July. And in Belgium, new car registrations fell 8.5 percent.

German sales figures are due to be released on Tuesday.

Additional reporting for Reuters by David Bailey, Soyoung Kim, Jo Winterbottom, Paul Day, David Bailey, Antonia van de Velde and Anne Jolis; Editing by Rupert Winchester, Bernard Orr