Auto Sales Continue to Stink

Some thought things might be looking up, but it turned out to be the same old story: While General Motors (NYSE: GM  ) and Ford (NYSE: F  ) managed modest year-over-year sales gains in July, the overall pace of U.S. auto sales remained weak, even by recent (low) standards.

Part of that weakness is because of the continued short supply of cars from the popular Japanese makers, and part of it can probably be chalked up to consumers' uncertainty in the face of threatened economic Doomsday scenarios.

The good news is that both of those problems should be fading in the rearview mirror before too long. But will it help?

Short demand, shorter supply
The overall sales numbers for July weren't good, though as usual they were better for some than they were for others. U.S. car and light truck sales were up less than 1% over last year's (not great) numbers for July, though sales are still up 11% over last year on a year-to-date basis.

General Motors posted an 8% increase in sales versus the year-ago period, helped by solid demand for its best fuel-efficient offerings, the Chevy Cruze compact and the Chevy Equinox and GMC Terrain crossovers. Other bright spots included the Buick Regal, the convertible version of the Chevy Camaro, and a modest bump in truck sales over June's number. Low points? Cadillac sales were down 26% because of a reduction in sales to fleets and the end of production of the big-barge DTS and STS sedans. Overall fleet sales were 26% of GM's total, a reasonable percentage.

Ford managed a 9% gain, thanks to (somewhat surprisingly) strong sales of SUVs. The small Escape SUV had its best sales month ever, the company said, and demand for the recently redesigned Explorer remains strong. Interestingly, the company also noted strong demand for its well-regarded small cars -- the Focus and Fiesta turn over more quickly than any other Fords -- but said that Focus sales in particular were "constrained by low inventory."

Ford executives said the company was simply caught off guard by the strong demand for the Focus and Fiesta, although there have been reports of problems with parts for the Focus that may have been limiting production capacity. In any event, the company is working on ways to increase supply of both, but one can't help feeling that an opportunity may have been missed -- those extra Fords may be arriving on dealer lots just as the Japanese competition gets back up to full speed.

Speaking of the Japanese competition, July remained tough for both Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) as the two Japanese giants continue to work to restore production in the wake of March's disaster. Toyota reported a decline of around 23%, led by huge supply-related drops in the small models that are especially hot right now: Corolla sales were down 33%, the small Yaris was down almost 53%, and the Prius was down nearly 42%. Likewise, Honda's sales were off 28% from last July's pace, again largely on supply issues. Bright spots for both? Just one, but it's a good one: Tsunami-damaged production is being restored more quickly than expected, and both should be back up to speed by September.

Elsewhere, Hyundai (OTC: HYMTF.PK) saw a 10% rise on strong sales of the small Accent and newly launched midsize Sonata sedan, back-from-the-dead Fiat (OTC: FIATY.PK) ward Chrysler reported a 20% gain thanks to a bunch of fresh products, and Nissan (OTC: NSANY.PK), which hasn't had significant supply disruptions in the U.S., managed a 2.7% gain.

Will it get better any time soon?
My wife has been car shopping, and I can tell you that now is a tough time to buy a car, especially a small fuel-efficient one. The Japanese production disruption, combined with high gas prices and Americans' new enthusiasm for compacts, has led to a market where all of the top-rated small cars, especially the Hyundai Elantra and Ford Focus, are in short supply. As a consequence, incentives are down, and dealers aren't interested in giving heavy discounts.

I think the sense that there are few deals to be had is making it harder for dealers to get frugal-feeling consumers into new cars. That's likely to change this fall, as Toyota executives have said that they will use aggressive incentives offers to help regain lost market share once the company's production is back up to full capacity in September.

But whether it will be enough to lift overall sales significantly remains an open question.

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Fool contributor John Rosevear owns shares of Ford and General Motors. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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