Aug. 31 (Bloomberg) -- Toyota Motor Corp. probably passed Ford Motor Co. in U.S. vehicle sales in August as the Japanese automaker weathered an industrywide drop in demand caused by the rising cost of credit.

Toyota may post a 2 percent gain this month to displace Ford as the second-biggest automaker in U.S. sales so far this year, according to research firm Global Insight Inc. Ford's sales fell 12 percent, the average estimate of six analysts surveyed by Bloomberg.

Its product line of fuel-efficient vehicles helped Toyota boost sales 6.1 percent through July as a housing slump and high gasoline prices drove industry volume down 3.2 percent. The effect of defaults in the subprime mortgage market probably added to Ford's woes in August.

``It's pretty safe to say that Ford is going to have a hard time retaining second place,'' said Rebecca Lindland, senior auto analyst for Global Insight in Lexington, Massachusetts. Ford has been second behind General Motors Corp. in annual U.S. sales since 1931.

GM's sales declined 5.9 percent in August and Chrysler LLC's dropped 5.8 percent, according to the analyst survey.

Automakers report August results on Sept. 4. The seasonally adjusted annual sales rate for the month may have fallen to 15.8 million cars and light trucks, the average estimate of analysts and 22 economists in the Bloomberg survey. The rate was 16.1 million in August 2006, according to Bloomberg data.

In July, U.S. car sales fell 12 percent and the market share held by GM, Ford and Chrysler dropped below 50 percent for the first time. Japanese and South Korean automakers grabbed a record 44.6 percent.

Truck Dependent

The U.S. brands of GM, Ford and Chrysler had a combined 8.7 percent sales decline through July, due in part to a 216,605-unit drop in sales of light trucks. The three automakers count on sport-utility vehicles, pickups and vans for about two-thirds of their U.S. sales.

Ford, which lost a record $12.6 billion last year, also has been cutting its low-profit fleet sales to rental-car companies.

``It would be really nice if they could retain their market share and make a profit, but if you have to pick, you take profitability,'' Global Insight's Lindland said.

Loans have become more costly and harder to get in the wake of the subprime mortgage crisis, prompting some analysts to lower their forecasts for auto sales.

Brian Johnson, a Lehman Brothers analyst in Chicago, reduced the low range of his estimate for industry sales this year from 16.4 million vehicles to 16 million, which would be the lowest since 1998.

`Systematic Tightening'

``Cars run on gasoline, but car sales run on credit,'' Johnson said in a note to investors. ``There has been a systematic tightening of credit standards'' for auto loans during the past year.

Credit-default swap contracts based on $10 million of GM bonds rose $1,200 to $757,900 yesterday, according to CMA Datavision in New York. Ford's climbed $8,300 to $763,300. An increase in the contracts, used to bet on a company's ability to repay debt, suggests a decline in investor confidence.

The contracts are designed to protect bondholders against default. A decline in the price indicates a rise in the perception of a company's credit quality.

Credit Costs

Alan Mulally, chief executive officer of Dearborn, Michigan- based Ford, said in an Aug. 29 interview that the higher cost of credit is hurting auto sales. An interest-rate cut by the U.S. Federal Reserve is ``one option'' for easing the problem, he said, though he stopped short of calling for a rate reduction.

Subprime buyers accounted for 19 percent of U.S. new-vehicle purchases last year, including 22 percent of loans at the U.S.- based automakers, J.D. Power & Associates said in a study released in April.

Katsuaki Watanabe, Toyota's president, told reporters yesterday in Tokyo that ``the subprime problem is a matter of concern for us. However, we believe the economic fundamentals in the U.S. are strong.''

Paul Ballew, director of market and industry analysis for GM, said he hasn't yet noticed the effect of higher borrowing costs. ``Our antennae are up and we are watching it,'' he said.

GM Incentives

GM's sales in the first half of August improved from the previous month, Ballew said in an interview. After a July sales decline of 22 percent, the Detroit-bases automaker raised incentives on its large pickup trucks to rebates of as much as $4,000 or five-year, interest-free loans. It also offered dealers cash rewards for sales through the end of August.

Chrysler, fourth in U.S. sales, will report its first monthly results since becoming an independent automaker again. Cerberus Capital Management LP on Aug. 3 bought an 80.1 percent stake in the Auburn Hills, Michigan-based company from Germany's DaimlerChrysler AG, ending a nine-year merger.

August sales at Tokyo-based Honda Motor Co., fifth in the U.S., probably were little changed from a year earlier, Global Insight estimated.

Nissan Motor Co., sixth in U.S. sales, may report an increase of 2 percent, the forecasting company said. Nissan also is based in Tokyo.

Shares, Bonds

GM rose 41 cents to $30.74 at 4:01 p.m. in New York Stock Exchange composite trading and have gained less than 1 percent this year. Ford increased 14 cents to $7.81 and are up 4 percent this year. Toyota's American depositary receipts, each representing two ordinary shares, gained $2.39, or 2.1 percent, to $115.68 and have declined 14 percent since December.

GM's 8.375 percent note due July 2033 rose 1 cent to 80.5 cents on the dollar, yielding 10.6 percent, according to Trace, the NASD's bond-price reporting service. Ford's 7.45 percent note due July 2031 fell 0.75 cent to 75.25 cents on the dollar, yielding 10.2 percent, according to Trace.

The following table provides estimates for August car and light-truck sales in the U.S. Estimates for companies are percentage changes from August 2006. Forecasts for the seasonally adjusted annual rate, or SAAR, are in millions of vehicles.

The SAAR average is based on forecasts from seven analysts and a survey of 22 economists. The analysts' estimates are based on daily rates for August's 27 sales days.

Analyst              GM     Ford    Chrysler    SAAR

Himanshu Patel       -1%    -13%     -7%        15.9
(JPMorgan)
Rod Lache            -3%    -11%     -4%        16
(Deutsche Bank)
Chris Ceraso         -2%*   -11%*    -8%*       16*
(Credit Suisse)
Richard Kwas         -13%   -12%      1%        15.3
(Wachovia)
Peter Nesvold        -7%    -16%     -14%       15.7
(Bear Stearns)
Rebecca Lindland     -9.3   -9.4     -3%        15.8
(Global Insight)
Paul Ballew          N/A    N/A      N/A        16.2
(GM sales analyst)

Bloomberg Economists N/A    N/A      N/A        15.7
(average estimate)

Average:             -5.9%  -12%     -5.8%      15.8

*Estimate presented as a range. Figure shown here is an average
of the range, rounded to the nearest tenth where appropriate.

To contact the reporter on this story: Mike Ramsey in Southfield, Michigan, at mramsey6bloomberg.net

Last Updated: August 31, 2007 16:18 EDT