How far will US car sales drop without 'clunkers'?

Most analysts believe that now that the "Cash for Clunkers" program has finished that domestic car sales will drop. But, how far?

In the first six months of the year, U.S. vehicles sales were running at a rate of only a little above nine million a month. July was a different story. The annual run rat moved up to closer to 11 million. The drop in vehicle sales compared to 2008 improved from 32% in the first six months to only 12% in July.

There may be increased demand in the second half of the year because of a slightly improving economy and the introduction of 2010 models, but the pace of overall sales could drop back to the 10 million-per-year level. That would be tough on several car companies, particularly Chrysler and GM. For the first seven month of 2009, GM's total dales dropped 37% and it share of the domestic market was below 20%. Chrysler had the worst sales percentage drop of all manufacturers in the first seven months, down 41% and its market share fell below 10%.

Chrysler's cost structure may have been cut sharply, but if it can only sell one million vehicles a year, it will not be able to post a recovery, and probably not a profit either.

Without "cash for clunkers" the entire market suffers, and Chrysler may loses its viability.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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