Car Sales at Highest Level in 10 Months

U.S. auto sales surged to their highest level in 10 months in August as consumers shrugged off fears about the economy and seized on interest-free loans and hefty rebates to buy new cars and trucks.

With all major auto makers reporting results Wednesday, sales rose 13.2% compared with August 2001, at a seasonally adjusted annual rate of 18.7 million vehicles, well above analysts’ forecasts of about 17.6 million.

The annual rate was the highest since an all-time record of 21.3 million in October.

General Motors Corp., the world’s largest auto maker, raised its earnings targets and production forecasts after reporting an 18.2% gain in August sales, excluding its Saab brand and some heavy trucks.

GM earlier in the day upped the ante in Detroit’s price war by adding new incentives, including interest-free loans, on many of its 2003 models.

The Chrysler arm of DaimlerChrysler reported the highest August sales increase of any Detroit auto maker, with a rise of 23.6% over a year earlier.

Even No. 2 Ford Motor Co., which has suffered a sharp drop in sales nearly every month this year, said its sales rose 8.2%, excluding heavy trucks and foreign brands Jaguar, Land Rover and Volvo.

Unlike GM, Ford said it expected to post lower production in the fourth quarter compared with the same period last year, and there are growing concerns about its efforts to return to profitability after a $5.45-billion loss last year.

Generous financing incentives and cash rebates have helped sustain auto sales, which account for about one-fifth of U.S. retail sales. But discounting has cut into razor-thin profit margins at Ford, which booked just $38 in profit for every vehicle it sold in North America in the second quarter. That contrasts with $529 at Chrysler and $800 at GM, which has held the momentum on incentives since it introduced no-interest financing after the Sept. 11 terrorist attacks.

“We plan to stay aggressive,” Paul Ballew, GM’s chief of industry analysis, said in a conference call. “We’re playing to win, and that requires us to grow this business and reach out to customers we’ve lost over the past couple of decades.”

Chrysler said Wednesday that it was matching GM’s deal on most of its 2003 models, and analysts said Ford probably would follow suit.

Many foreign auto makers, including Detroit’s key Japanese rivals, reported double-digit U.S. sales gains in August, with Toyota Motor Corp. posting a 13.2% increase. Honda Motor Co. was up 12.9%, and Nissan Motor Co. posted a 19.8% gain.

Import auto makers, led by the Japanese and South Koreans, have been waging an intensifying battle for U.S. market share, with the largest Japanese companies keeping incentives to a minimum.

Among luxury foreign nameplates, the biggest winners were Land Rover and Jaguar, both of which are owned by Ford and have surged on the back of new U.S. vehicle launches this year.

That’s one of the few current bright spots for Ford, which was founded in 1903 and reported selling its 150-millionth vehicle in August. It also reported record sales of its Explorer sport utility vehicle in the month, with 51,000 units moving through dealerships, thanks to high incentives.

“Despite the slide in confidence over the summer and the weakish labor markets, consumer spending is resilient,” said Ford’s senior U.S. economist, Jarlath Costello.

“The economy is likely to grow in the 2.5% range in the second half of the year, while most fundamentals for vehicle buying--mainly interest rates and low inflation and good income growth--remain very supportive,” he said.

On the New York Stock Exchange, Ford shares rose 11 cents to $11.05, DaimlerChrysler gained $1.65 to $41.52, and GM rose 25 cents to $45.75.