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Auto sales rise as higher gas prices, aging vehicles spur demand

UPDATED 10:13 a.m. EDT: Americans may be worried that the economy isn't picking up enough momentum, but they aren't concerned enough to stop buying fuel-efficient new cars and trucks to replace aging vehicles.

Chrysler said Tuesday that sales rose 14 percent in August amid strong demand for its Ram pickup truck. It was Chrysler's 29th consecutive month of year-on-year sales. Ford's U.S. August sales rose 13 percent, to 197,249 vehicles.

And General Motors Co posted a 10 percent jump, as higher gasoline prices spurred sales of GM's Cruze and other compact cars. Average U.S. gasoline prices have risen about 21 cents a gallon in the past month.

"Higher gas prices in August will lead to unseasonably strong small car performance across the industry," said Edmunds.com analyst Jessica Caldwell.

With roughly 70 percent of the market reporting so far on Tuesday, the U.S. auto industry is on track to show an annual sales rate of 14.5 million vehicles, J.P. Morgan said. Analysts polled by Reuters forecast an annualized sales rate of 14.2 million light vehicles.

The fact that consumers are replacing older cars and trucks helped U.S. auto sales in August gain at a faster rate than the overall economy, said Carsten Krebs, head of communications for Volkswagen Group of America.

The U.S. economy grew at a rate of 1.7 percent in the second quarter.

Volkswagen showed its best August U.S. sales performance since 1973, Krebs said, rising 62.5 percent to 41,011 vehicles

Rising gas prices were a factor in consumer choice of vehicles in August, said Ken Czubay, Ford vice president of U.S. marketing.

"As fuel prices rose again during August, we saw growing numbers of people gravitate toward our fuel-efficient vehicles," said Czubay.

Ford reported record sales for the Escape crossover and Fusion sedan, and said F-Series pickup had its best sales month all year. Ford brand sales were up 13.1 percent, while Lincoln brand sales rose 1.7 percent.

Ford also said it's going to raise production in the fourth-quarter by 7 percent to meet expected higher demand.

Chrysler said it sold more than 148,000 vehicles in August. It sold more than 25,000 Ram pickups, an increase of 19 percent over August of last year and its best results for the vehicle in five years.

Auto sales, which offer an early snapshot of consumer demand, have been one of the bright spots in the U.S. economy, and car companies expect a second-half sales increase spurred partly by the introduction of a slate of new models.

Industry officials also say that the average age of cars on U.S. roads - 11 years, an all-time high - continues to drive demand.

"While unemployment and consumer sentiment data haven't supported U.S. sales, we believe that these factors are being more than offset by the solid financing environment, improved housing data, and high pent-up trade-in demand from former new car buyers of 2004-08 who still own their vehicles," Barclays analyst Brian Johnson said in a research note.

Johnson reiterated he expects sales for the full year to finish around 14.4 million vehicles as demand picks up toward the end of the year.

U.S. auto sales fell to 10.4 million vehicles in 2009 before rising to 11.6 million and 12.8 million the following two years, respectively. In the 10-year period ended in 2007, U.S. auto sales averaged nearly 17 million annually.

Executives at General Motors and Ford Motor Co have also said the improving housing sector could spur pickup truck sales.

But signs of a continued economic recovery have been mixed.

Consumer spending in July posted the biggest increase in five months and home prices in June rose for the fifth straight month. However, consumer confidence this month slid to the lowest level in nine months as Americans were more pessimistic about business and job market prospects.

And the deterioration of the European auto market has raised fears of a contagion in the U.S. market.

Automakers also have gotten creative in propping up sales without resorting to broad-based consumer incentives, which have declined, said Edmunds.com Vice Chairman Jeremy Anwyl.

"In June, GM was helped by sales to fleet buyers that were 35 percent of their total," he said. "Last month, we heard about BMW's one-day demo sale to dealers. There has been a flurry of stair-step incentive programs in the market, and I suspect that some manufacturers have been working deals with subprime lenders to help expand the market as well."

Anwyl said that those types of deals were not always reflected in the monthly incentive numbers tracked by research firms, but that they were nonetheless real costs to the automakers.

Another factor supporting new-car demand is the high price of used cars, said Kelley Blue Book senior analyst Alec Gutierrez. "Savvy consumers are likely opting to pay an extra $20 or $30 per month to buy or lease a new car than settle for a used vehicle with 20,000 miles or more," he said.

The Associated Press and Reuters contributed to this report.

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