Auto Sales Up in August Thanks to Cash for Clunkers

Hyundai, Ford lead in sales but will consumers flock to showrooms in September?

Sept. 1, 2009— -- August was a very good month for Ford, which said its U.S. auto sales rose 17.2 percent compared to the same month a year ago.

Helping drive sales last month was the U.S. government's Cash for Clunkers program which gave consumers thousands of dollars to replace their aging cars. The government vouchers, which were worth $3,500 to $4,500 toward new-car purchases, were also paired in many cases with generous dealer incentives.

Two of Ford's vehicles — the Focus and Escape — were among the top selling cars under the clunkers program which was in effect for most of the month. Overall, sales of the Focus rose 56 percent. Sales of the Escape crossover vehicle rose 49 percent.

Things were not as rosy at Chrysler, where sales fell 15 percent compared to last August. The clunkers program lowered supplies of Chrysler's fuel-efficient vehicles like the Dodge Caliber, the Chrysler Sebring and the Jeep Patriot. Going into August, five of Chrysler's most efficient vehicles were already at low inventory levels.

Despite Chrysler's problems, it appears that overall car sales were up. Now the question for all manufacturers is: Can automobile sales stay strong through the rest of the year?

"Consumers were spoiled with big incentives and with Cash for Clunkers," said senior analyst Jessica Caldwell. Going forward, "it could look pretty bleak."

"There was a big party. Now it's over and back to reality," she added.

Ford and Hyundai appear to be the big winners for August, both seeing large increases in sales compared with July and a year earlier.

Ford, which has been known for its SUVs and pickup trucks, was able to capitalize on the government program with its Focus, Fusion and Escape models.

Hyundai had an aggressive marketing campaign and matched the government's money with some of its own. Caldwell said that shoppers were getting $6,000 to $8,000 off cars that carried sticker prices of $14,000.

Stephen Spivey, senior auto industry analyst with Frost & Sullivan, noted that Hyundai started early this year marketing to people's fears about the recession. For instance, Hyundai was one of the first automakers to offer a payment protection plan where it would pay car loan bills for customers who lost their jobs after buying a new car.

"They've done a lot to go after those consumers that are worried about the economy and their ability to purchase a vehicle," Spivey said.

Toyota, which accounted for 19 percent of all Cash for Clunkers sales, is also expected to report some strong gains. It also had two of the program's top three best-selling models.

The biggest loser appears to be Chrysler, when compared to the year before. The company started out with strong sales but then ran out of small cars to sell, in part because of production shutdowns related to the company's bankruptcy restructuring, Caldwell said.

"They really didn't have enough of the right cars to fuel the program," she added.

Cash for Clunkers was the shot in the arm automakers needed to help in an otherwise dismal year.

From January through July car sales were down 32 percent compared with the same seven months last year, according to Ward's Automotive Group.

Spivey said about 700,000 vehicles were sold through Cash for Clunkers and of those, he estimates that half would have been purchased without the program. The others might have been thinking about buying a car later in the year but sped up their schedule.

So Spivey said that while the August sales are very strong, "the bad news, it is probably borrowing against sales for the rest of the year."

The bright side, he said, was that many people visited showrooms given the hype about Cash for Clunkers and that might have whet their appetites to buy a car in coming months.