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Correction to This Article
The article misspelled the name of Rae Tyson, a spokesman at the National Highway Traffic Safety Administration.
Cash for Clunkers Deal Drives Auto Sales

By Dana Hedgpeth
Washington Post Staff Writer
Tuesday, August 4, 2009

U.S. auto sales rose to their highest levels of the year in July as consumers rushed to trade in older vehicles under a government incentive program that has become so popular it is in danger of running out of money.

Automakers issued their sales reports Monday, raising hope that the sagging auto industry is headed for a recovery, although some analysts cautioned that a turnaround would still be slow. The uptick comes as Congress considers whether to provide up to $2 billion more for trade-in incentives to keep the effort going.

Ford said its sales were up 2.4 percent over the same period a year ago, its first monthly increase in two years. The automaker attributed much of the gain to the Cash for Clunkers program, which allows consumers to receive rebates for turning in older cars for more fuel-efficient models.

George Pipas, sales analyst for Ford, said the automaker thought it was going to fall short of last year's July sales level until the government's stimulus kicked in.

"Cash for clunkers put us over the top," Pipas said.

Subaru said it also benefited from the trade-in program, as sales were up 34 percent.

Chrysler, General Motors and other major automakers did not show gains, but interest in the rebates appeared to have eased their losses as well.

Sales slid 9.4 percent for Chrysler, 11.4 percent for Toyota, 17 percent for Honda, 19.4 percent for General Motors, 1.4 percent for Volkswagen and 25 percent for Nissan. Germany's Daimler AG said its U.S. sales dropped 24 percent in July because few gas guzzlers were being traded in for Mercedes-Benzs.

Companies sold 997,824 cars and trucks in the United States, a 12.2 percent decline from July 2008, according to preliminary data released Monday by research firm Autodata. The monthly figure for car sales translates to an annualized rate of 11.24 million cars, far off 2007's pace but one the government has said could help GM and Chrysler return to profitability.

George Augustaitis, market analyst for U.S. auto sales at auto consulting firm CSM Worldwide, said the monthly sales numbers showed the government's clunker program "really drove people into dealerships." But he predicted that the program's popularity could wane if the economy remains mired in recession and consumers remain reluctant to spend.

"With this economic recession, American households lost wealth. Savings rates were at all times low. Baby boomers are retiring. People are not going to run out and spend like they would have in the past. This is going to be a slow recovery, even in autos," Augustaitis said.

The clunker program kicked off a little more than a week ago and so many consumers sought to take advantage of the program that it almost ran out of money. The House hastily approved another $2 billion for the program on Friday, and many are hopeful that the Senate will pass that measure.

Transportation Secretary Ray LaHood said Monday evening that the $2 billion would last through Labor Day.

However, the program's prospects remain uncertain. The Senate has not scheduled a vote or set a date to consider it before members recess Friday.

When it was first approved in June, only four Republicans backed the provision, while many others cast it as wasteful spending.

Speaking on the Senate floor Monday, Minority Leader Mitch McConnell (Ky.) questioned whether it made sense to rush into spending more on the clunker program after the $1 billion went so fast.

"We were told this program would last for several months," McConnell said. "As it turned out, it ran out of money in a week, prompting the House to rush a $2 billion extension before anybody even had time to figure out what happened with the first billion."

If the extension is not approved, it would be bad news for dealers such as Rick Case, who oversees 16 showrooms in Florida, Ohio and Georgia. He said his salesmen were swamped the weekend, as customers traded in 200 older models for new cars. That made it the biggest sales weekend his dealerships have had since August 2003.

"It is a good thing for consumers, dealerships and manufacturers," he said.

The National Highway Traffic Safety Administration said that as of Saturday afternoon 80,500 cars, averaging 15.8 miles per gallon, had been traded in for cars averaging 25.4 miles per gallon. Sales of Ford, GM and Chrysler vehicles accounted for 47 percent of all clunker sales. The top-selling vehicle was the Ford Focus.

Ray Tyson, spokesman for the NHTSA, said Citigroup, which contracted to help process transactions from dealerships, has beefed up its staff to 300 on the clunker program from 100. Oracle, which has the computer contract, also has made improvements to its system so it can handle as many as 30,000 transactions at once. Last week, dealers had trouble getting into the computer system.

Meanwhile, the largest U.S. automaker continued to restructure. GM said it expects to lay off thousands more factory workers because not enough took a buyout offer. Also on Monday, a bankruptcy judge granted GM approval to cut 33 dealerships -- part of its plan to shutter thousands of dealerships by next year.

Staff writers Perry Bacon and Sholnn Freeman contributed to this report.

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