Ford posts its first sales increase in nearly 2 years on strong “cash-for-clunkers” traffic

Cash for Clunkers boosts Ford’s July sales 1.6 pct

DETROIT — Lured by the government’s cash-for-clunkers campaign, car and truck buyers started to return to Ford Motor Co. showrooms last month, with the automaker reporting its first U.S. sales increase in nearly two years.

July sales of Ford, Lincoln, and Mercury light vehicles rose 1.6 percent from the same month last year. Ford sold 158,354 vehicles, a 2.2 percent increase over last month and a sign that consumer fears that fueled the worst U.S. auto sales slump in a quarter-century may be easing.

Ford’s sales, 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.

The clunker 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.

Called the Car Allowance Rebate System, or CARS, the clunkers 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 on 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. Senators were to vote on the plan this week.

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 trending toward better gas mileage despite gasoline prices around $2.50 per gallon.

Shares of Ford rose 54 cents, or 6.8 percent, to $8.54 in midday trading Monday. Shares of the company have risen steadily since Ford reported a surprise second-quarter profit last month.

Analysts expect other automakers to turn in strong performances for the month, most notably Korea’s Hyundai Motor Co., which may pass Chrysler Group LLC and Japan’s Nissan Motor Co. in sales for the first time in history. Subaru of America Inc. on Monday said its US sales leaped 34 percent in July on sizable sales improvements for most of its models.

German automaker Daimler AG said its sales in the U.S. fell by 24 percent in July, amid plunging sales of its Smart minicar and Mercedes-Benz luxury vehicles.

Still, industry analysts predicted that July sales, if converted to an annual rate, would top 10 million cars and trucks. It would be the first month this year that sales rose above the depressed 10 million figure.

General Motors Co. and Chrysler, both of which have gone in and out of bankruptcy protection and 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.

As recently as 2007, U.S. car and light truck sales topped 16 million vehicles, but economic troubles, tight credit and a lack of consumer confidence sent sales plunging late last year and during the first half of 2009.

Led by clever marketing and strong new products like the Genesis luxury sedan, Hyundai was expected to see an 8 percent sales increase, Edmunds predicted.