Ford rides clunkers to big gains

On Monday, the Ford Motor Company (F) reported its July auto sales. The automaker, which watched its numbers plunge with 2008 gas price increases and the subsequent recession, said that it is experiencing a significant uptick for the first time in almost two years.

Including Volvo, Ford's sales totaled 165,279 automobiles, a 2.3 percent increase over last July's 161,530. Although modest, this jump is quite significant, as it represents the company's first monthly increase since November 2007. Analysts have cited a variety of factors for the improvement, though all agree that the government's Car Allowance Rebate System (CARS) -- a.k.a. "cash for clunkers" -- was the primary cause of the increased sales. Offering cash rebates of up to $4500 for applicable new car purchases, the program has given a major boost to the automotive industry.

Retail sales, which exempt fleet sales, show an even more impressive jump of nine percent. This disparity is particularly interesting: if fleet sales represent a fairly consistent replacement rate, then Ford's July retail sales point to an unsustainable boost, as pent-up demand results in consumers moving quickly to trade out their old, failing cars. While the $2 billion that Congress is proposing will keep the CARS program going for a few more months, it seems unlikely that any stimulus, no matter how impressive, can cause a real recovery. In the absence of artificial stimuli, the retail replacement rate will, presumably, slip to somewhere equivalent to or below the fleet replacement rate.

On the other hand, Ford can certainly use this boost -- and the information that it has generated -- to give it an idea of future sales demographics. The Ford Escape, which boasts unsurpassed fuel economy, was one of the big stimulus winners, as was the F-150, which beat comparably equipped Toyota Tundras and Dodge Rams in fuel efficiency. Of course, the Focus, with its 35 miles per gallon consumption, was also a big seller last month.
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