U.S. Car Sales Jump on Deep Discount Programs

Detroit's Big Three automakers posted stronger-than-expected double-digit U.S. sales gains for July thanks to deep discount programs that allowed customers to pay the employee price.

Ford Motor Co.'s (F) U.S. sales jumped 35.5 percent in July while General Motors Corp. (GM) said sales rose 20 percent.

The 35.5 percent year-over-year gain that Ford posted on Tuesday was the first by the second-largest U.S. automaker after 13 consecutive months of declines as it hemorrhaged market share to fast-growing Asian rivals led by Toyota Motor Corp (search).

The results came after Ford, which is struggling to return its core North American automotive operations to profitability, followed the lead of GM by offering consumers new vehicles at the same low price employees pay.

Chrysler, a unit of DaimlerChrysler (DCX), which said its U.S. sales jumped 32 percent in July, has also matched the program.

Toyota, Nissan Motor Co. Ltd. (search) and Honda Motor Co. Ltd. (search) also posted double-digit increases but the gains were generally more modest than those of their Detroit-based competitors.

GM, the world's largest automaker, said its U.S. sales totaled 530,027 vehicles in July compared with 459,263 in July last year. GM adjusted the percentage change to account for one extra selling day in July 2004. GM results also include its Saab brand and some medium- and heavy-duty trucks.

GM also said it will continue its employee discount program.

All sales figures are adjusted for one less selling day in July this year. Sales percentages are adjusted for differences in the number of selling days. There were 26 selling days in July 2005 and 27 in July 2004.

Sales of Ford, Lincoln and Mercury trucks were up 38 percent over last July, while car sales rose 26.7 percent. The discount gave a lift to what had been a lackluster year for the nation's No. 2 automaker. Ford's overall sales increased just 1.7 percent in the first seven months of the year versus a year ago.

Ford said its F-series trucks set a record for the highest monthly sales of any vehicle since the 1920s. F-series sales were up 58 percent in July to 126,905. F-series truck sales were up 4 percent for the January-July period.

GM first began offering employee pricing in June. It was so successful that Ford and DaimlerChrysler matched the program in July. The employee-pricing plans were scheduled to end Monday, but Ford and GM have announced they're extending employee-pricing on 2005 vehicles until Sept. 6 and Chrysler is extending the deal indefinitely.

GM shares were up 14 cents to $37 on the New York Stock Exchange (search). Ford shares were up 3 cents to $10.88 and DaimlerChrysler shares were up $1.28 to $50.65.

But the success of big consumer incentives from Detroit's automakers, which cut vehicle prices by thousands of dollars, could come back to haunt the companies later on.

There is a growing fear in the Motor City about the so-called "pull-ahead" or "payback" effect. Exceptionally strong sales in any one month can weigh on near-term demand for mass market brands such as Chevrolet, Dodge and Ford. July's torrid pace is unlikely to be sustainable, analysts say.

"The inevitable hangover is on the way," analyst David Healy of Burnham Securities said in a recent research note.

In the same note, Healy commented on one of the fundamental problems facing U.S. automakers, which seem unable to sell any but a handful of models without rebates and discounts galore.

"Although Detroit has for all practical purposes closed the U.S./Asian quality gap, the perception that American companies still produce garbage, as they actually did during much of the 1970s and 1980s, is proving most difficult to eradicate," Healy said.

"The poor quality of many of these old models has bred a new generation of car buyers who would never consider entering a domestic brand showroom," he added.

GM and Ford both said Monday that they are trimming sticker prices for many vehicles in the 2006 model year. By contrast, Toyota has said its 2006 prices will be slightly higher. Sales of Toyota's increasingly popular Prius gas-electric hybrib mid-size car were up 92 percent in July.

Reuters and the Associated Press contributed to this report.