Auto Sales: 'Clunkers' to the Rescue

Thanks to the "cash for clunkers" program, U.S. auto sales for July jumped 13% over June, led by Ford. But GM and Chrysler showed smaller benefits

By David Welch and David Kiley

Watch the Video…

The federal government's "cash for clunkers" program gave the U.S. car market a nice shot in the arm in July.

U.S. car sales hit an annualized pace of 11.2 million vehicles, a 13% jump over June's sales rate, according to data-tracking firm Autodata. And while sales still fell 12% compared with July 2008, the performance was so much better than the 35% drop-off registered in the first half of this year that automakers are giddy with hope that the worst of their sales doldrums may be over.

Ford Motor (F) posted a 2% monthly sales gain over July 2008, its first increase since 2007, while Detroit rivals General Motors and Chrysler managed smaller declines than they had earlier this year. "The clunkers program just got people thinking about buying a car," says Maryann N. Keller, an independent analyst who is on the board of directors for dealer chain Lithia Motors (LAD). "It brought people into showrooms and cleared out some inventory."

The program gives car buyers $3,500 or $4,500 for trading in an old model for something more fuel-efficient.

It's clear that the clunkers program helped sales, but some analysts argue it wasn't the only reason for the jump. Some of the sales increase came from shoppers who were already heading to dealerships to take advantage of summer deals, which carmakers traditionally offer to get rid of 2009 model-year cars before the 2010 cars arrive. "The program was never funded at a level that would pull more people in," says Jeremy Anwyl, CEO of Edmunds.com. "Consumers have been waiting all year for summer months when carmakers blow out inventory."

No. 1 Trade-In: Explorer for Focus

Still, the hype over the program—which has been in the news for several months—brought people to showrooms even if their trade-in cars didn't qualify for subsidies, Keller says.

Regardless of the reasons, some carmakers saw a real boost. Hyundai, Kia, and Subaru—in addition to Ford—all saw sales increases. Ford's Focus subcompact was the most purchased car in the clunkers program. Also, the Ford Explorer, once one of the most alluring vehicles on the market, has become the industry's most popular trade-in under the clunkers program, according to government data.

Ford chief economist Emily Kolinsky Morris says the sales boost from the clunkers program pulled a lot of buyers off the sidelines. "We know from looking at past months' sales that a lot of people stayed out of the market because of anxiety over the economy, so clunkers unleashed a lot of pent-up demand."

Ford's good news didn't extend to other U.S. automakers, though. GM sales plummeted 19% for the month, but this was largely because of a drop-off in sales to rental fleets, said Mark LaNeve, GM's vice-president of U.S. sales. Retail sales for the four brands GM will keep—Buick, Cadillac, Chevrolet, and GMC—were up 12%. Buyers continue to flee the brands that GM is either selling or killing off: Sales at Saturn, Saab, and Hummer dealers all fell by at least 57%.

The clunkers program helped GM sell more of its Aveo subcompact, HHR retro-styled wagon, and its full-sized pickups. Aside from the clunkers program, GM's resurrected Chevy Camaro muscle car is flying off the lot. The car could qualify for clunker cash if the buyer gets it with a V6 engine, but the car had plenty of interest before the program started. LaNeve said GM has almost no inventory on dealer lots and more than 17,000 unfilled orders.

VW Far Outpaced German Automakers

Hyundai, which gained 1.2 points of market share in the first half of the year, posted a sales increase of 12% in July. The Korean carmaker had been closing deals all month based on clunker reimbursement from the government, advancing dealers $3,500 or $4,500 until officials could start processing the applications on July 23. Hyundai's top seller was the Elantra, which posted a 30.2% gain. Overall, 22% of Hyundai sales in July were assisted by clunker rebates. Hyundai's cousin company, Kia Motors, posted a 4.7% increase.

Business Exchange

Track and share business topics across the Web.