After the Clunker Party, an Auto Sales Hangover

Cash for clunkers did its job in August, pushing car sales to levels not seen since last year. But the boom from the U.S. government's program has already worn off for automakers.

Car companies said on Sept. 1 that their August sales soared to an annualized selling rate of about 14 million, thanks to the government's clunkers program, which gave $3,500 to $4,500 to consumers trading in an old gas guzzler for something more efficient. The accelerated sales rate was a boon for carmakers, especially Ford (F), Toyota (TM), Honda (HMC), and Hyundai. But the industry appears to be giving those gains back as the annualized rate has fallen to 8 million vehicles since Aug. 25, when the program stopped. "August was the best month of the year, but it's possible that it could be followed by the worst month this year," says Jeremy Anwyl, chief executive officer of

The clunkers program was especially helpful to Hyundai, whose sales soared 47% for the month, according to Autodata. Ford saw its sales increase 17%, Toyota was up 10.5%, Honda 10%, Mazda 12%, and Kia posted a dramatic 60% rise.

General Motors and Chrysler both saw sales declines. But GM's 20% decline was partly due to a rough comparison with August 2008; that year-earlier month marked GM's 100th anniversary and the company offered employee pricing and a truck-blowout sale, noted Mark LaNeve, GM's vice-president for North American sales. Overall, GM considered August 2009 a success; it had just exited bankruptcy court a month earlier and yet managed to hold its market share at 19.4% while cutting incentives by $500 a vehicle, to $3,200 per car, LaNeve said.

Rebates May Have Cannibalized Fall Sales But like other carmakers, GM saw sales trail off after the clunkers program ended. And it appears that the rebates sucked some sales out of September as well. Michael DiGiovanni, GM's executive director of global market and industry analysis, says that he thinks about 200,000 of the 700,000 cars sold under the clunkers program were pulled ahead from future months.

Thanks to the clunkers rebates, Ford was able to drop its incentive spending in August by $451 per car, and the total that the company spent per vehicle on incentives dropped below $3,000 for the first time in at least two years. That's about $1,800 less than its incentive spending a year earlier. Ford executives say their cars are fetching better prices, which should bode well for third-quarter earnings. Two of Ford's offerings—the Focus and the Escape—were among the top-selling vehicles under the clunkers program. Sales of the Focus rose 56%, while those of the Escape crossover climbed 49%.

Ford economists estimated that without the clunkers program the industry would have seen a 10.5 million annualized selling rate in August. That's historically very weak, but better than the first half, when cars sold at an annualized pace of around 10 million. That indicates the economy may be starting to come back, albeit slowly.

Chrysler sales were off 15%, at least in part because the company had no inventory. Chrysler announced that it would match the government's clunker cash with deals of its own. But that cleared out passenger cars that qualified for the government program and left the company with little to sell as the program wore on.

Many carmakers are now in the same bind, Anwyl says, if not to the degree that Chrysler is. He says that with inventories so low, dealers won't want to negotiate as much on price. Automakers have also cut back on rebates, pushing car prices up until inventories are replenished in the next four to six weeks. Prices are up $500 to $1,000 a car, which will slow sales and add to the hangover from the clunker program.

Looking ahead, sales should slowly rebound, with analysts predicting that they will hit an annualized rate of 10.5 million in the fourth quarter and pick up slowly but steadily next year.

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