Auto sales gain, but consumers still wary

NEW YORK (CNNMoney.com) -- The auto industry reported its best month since Cash for Clunkers brought a flood of buyers out a year ago, but the sales still showed consumers reluctant to buy new vehicles.

The initial reading from sales tracker Autodata shows a total of 1.05 million vehicles sold in the month, up 5% from a year ago. July marked the second best sales rate since the economic meltdown in September 2008, trailing only the spike in sales that resulted from the Cash for Clunkers program in August 2009.

Final tallies will likely show a seasonally-adjusted annual sales rate of about 12 million vehicles -- an improvement from an annual rate of just over 11 million vehicles during the first half of the year.

But much of the improvement came from lower priced fleet sales to businesses like rental car companies, rather than strong consumer demand. George Pipas, Ford's director of sales analysis, estimated that industrywide sales to consumers rose only 1% in the month, while fleet sales shot up 35%.

"We can't get out of first gear," said Jesse Toprak, an analyst with the auto pricing Web site Truecar.com. "Clearly there's hesitation from consumers to pull the trigger. There are signs of life in these numbers, but it's plankton, not anything big."

Many analysts had hoped for slightly better numbers for the industry, given the strong start of the month, a calendar that included five Saturdays and attractive pricing from major automakers.

But Jessica Caldwell, senior analyst for automotive Web site Edmunds.com, said the strong early sales seemed to loose steam amid troubling economic reports.

"People are being cautious," she said. "Unless they have to buy a new car, they are not wanting to spend money. There were good deals this month, but they're just watching to see where it goes."

Still Ford's Pipas sees year-over-year consumer sales just holding steady as an achievement given that July 2009 included the start of Cash for Clunkers, which gave buyers up to $4,500 in cash back from the government if they traded in an older gas guzzler and bought a new car.

Individual results from the different automakers were a mixed bag. While few car companies had terrible results, there were signs of weakness hidden in even some stronger reports.

General Motors reported that overall sales gained 5% from a year ago, a period in which it emerged from bankruptcy. That put it roughly in line with forecasts.

Sales for the four brands it continues to sell -- Chevrolet, Buick, GMC and Cadillac -- jumped 25% from a year ago. A 99% plunge in sales at Pontiac, Saturn, Hummer and Saab, the four brands it dropped as part of its bankruptcy, was a drag on overall sales.

"We think consumers are going to continue to be cautious, but all that being said, July was a solid month for us," said Don Johnson, vice president, GM U.S. Sales Operations.

Ford Motor (F, Fortune 500) sales rose 5% compared to a year ago, as a 27% jump in light trucks, primarily pickups, was balanced by sales drops of both car and utility models. The results do not include a 32% decline in sales at Volvo. Ford completed the long-announced sale of that unit to Chinese automaker Geely on Monday.

Ford's sales fell short of forecasts. But Pipas said its mix of vehicles was positive, with very few low-priced sales to rental companies and strong sales of the new high-end Ford Super Duty pickup truck.

"Once you look behind the volume, this was the biggest revenue month for Ford in quite some time," he said.

But he conceded that consumers are still only buying new cars when they have to replace old ones. He said that replacement demand is not enough to provide for a return to pre-recession sales levels.

"The second half should show a modest improvement, but not dramatic," he said.

Sales at Toyota Motor (TM) declined 3% from a year ago, leaving it mired in third place behind Ford in terms of U.S. sales. In recent years Toyota had been second only to GM in U.S. sales.

Year-over-year comparisons were tough on Toyota, which got a lift last year from bankruptcies at GM and Chrysler as well as the start of the Cash for Clunkers program. Still, the decline was roughly in line with expectations.

Toyota has been dogged by the flood of recent recalls. Last week it announced a new recall of 400,000 vehicles due to steering issues. But Toyota executives said that sales at the company and the industry as a whole are moving in the right direction.

Sales slipped 2% at Honda Motor (HMC), making it the only other major automaker to post a year-over-year decline in sales. Honda had also gotten a lift from the start of Cash for Clunkers. But analysts had expected Honda to post a modest gain in sales.

Despite a big Cash for Clunkers boost last year, Hyundai Motor, which operates both the Hyundai and Kia brands in the U.S., posted a 19% rise in sales at the two brands, leaving it just behind Chrysler Group in terms of U.S. sales and well ahead of forecasts.

Sales at Chrysler Group, which includes the Chrysler, Dodge and Jeep brands, also rose 5% from a year ago. The gain was largely driven by improved sales at Jeep, particularly its Wrangler model. Wrangler sales more than doubled. Chrysler's results topped expectations.

Japanese automaker Nissan posted a 15% gain in sales, but still fell short of forecasts.