Clunker trade-ins boost July U.S. auto sales

The punishing four-year decline in U.S. auto sales may have reached a turning point this week -- just as Michael Papa handed over the keys to his 1996 Ford Explorer for a government-sponsored trade-in.

Papa, a Detroit-area restaurant owner, and thousands of other Americans took advantage over the past week of the U.S. government's "Cash for Clunkers" incentive of up to $4,500 to trade in older gas-guzzlers for newer, more fuel-efficient cars.

The sudden rush of demand at car dealerships long empty of customers quickly exhausted the $1 billion allocated for the program and drove U.S. auto sales to their highest level of 2009, analysts and industry executives said.

"I wasn't really looking for a new car, but that was a big incentive. That was the driving force to finally get rid of (the old car)," said Papa.

His Explorer had 150,000 miles on it and averaged 15 miles per gallon. The Ford Escape he got in return posts average fuel economy of 24 miles per gallon.

Without the incentive, "we would have waited another year until the car finally died for good," Papa said, while waiting to pick up the Escape at the Dean Sellers Ford dealership in Troy, Michigan.

Analysts see the success of the program turbocharging July auto sales, one of the earliest snapshots of pent-up consumer demand. The House of Representatives approved on Friday a $2 billion extension of the program and the Senate is expected to act on the bill.

"July industry sales appear to have received a nice boost over the past few days from the government's scrappage incentive," Barclays Capital analyst Brian Johnson said in a research note on Friday.

A Reuters poll of 12 analysts shows that U.S. July auto sales taken before the launch of the clunkers program showed a median forecast of 10 million vehicles on an annualized basis.

That would be up from 9.7 million in June and the strongest total since December's 10.3 million annualized sales rate.