By SHARON TERLEP
Of DOW JONES NEWSWIRES
DETROIT -(Dow Jones)- U.S. auto sales strengthened in October despite a fall in incentives as buyers responded to new model launches and auto makers replenished their inventories, fueling optimism about a sector recovery.
Light-vehicle sales climbed to an annualized rate of around 10.5 million, according to auto makers' estimates on Tuesday, ahead of the 9.2 million in September. It was the best performance in at least a year, excluding the temporary boost from the government's cash-for-clunkers program.
"Economic indicators are consistent with an economy that is in transition from recession to recovery," Ford Motor Co. (F) economist Emily Kolinski Morris said in a call with analysts and reporters. "A continuation of this trend is a realistic expectation as we close out the year."
Ford continued its strong run with a 3.3% rise in sales from a year earlier, and market leader General Motors Co. reported a 4.7% increase, its first gain since January 2008.
However, Chrysler Group LLC continued to lose ground, posting a 30% decline as the auto maker struggles with an inventory shortage and a dearth of new models ahead of a strategic re-launch due to be announced Wednesday.
Auto executives cited improvements in the housing market - notably new starts and stabilizing values - as an indicator of broader improvements in the economy. This was tempered by caution that any recovery will be slow, and uncertainty about consumer spending habits in the wake of the recession, particularly with unemployment continuing to climb.
"The industry still has to find a way through these economic challenges," said Bob Carter, group vice president of second-ranked Toyota's (TM) U.S. division.
New models helped GM, Ford and Toyota Motor Co. lure more customers. Monthly sales of the GM's new Buick LaCrosse sedan, for instance, nearly doubled from a year ago. Toyota's Lexus luxury division reported a 15.5% year-over-year increase, which the auto maker attributed to popularity of new models. Sales of Ford's made-over Taurus more than doubled from a year ago.
Ford's overall increase came despite a fall in incentive spending. The company averaged $2,909 per vehicles on incentives, down 25% from a year ago and 5.8% from September, according to car shopping site Edmunds.com. Industrywide, incentives averaged $2,468 per vehicles in October, down 8% from September and down 12% from last year.
Unlike at Ford, roughly half of GM's October U.S. sales were 2009 model-year vehicles. Deep discounting was needed, and that practice erodes profitability and tends to drag down vehicle resale values.
GM will need time to wean itself from a historic dependence on incentives, company sales chief Susan Docherty said.
"It didn't happen overnight, we're not going to fix it overnight," she said.
Chrysler continues to struggle to reinvent itself following this summer's bankruptcy. The auto maker has not launched a new vehicle in more than a year and its inventories remain depleted following factory shutdowns and the clunkers-driven rush in July and August.
Meanwhile, sales were also slightly higher in the U.S. last month for Japan's Toyota Motor Co. and Nissan Motor Co. (NSANY), while Honda Motor Co. (HMC) posted a 0.4% decline.
-By Sharon Terlep, Dow Jones Newswires; 248-204-5532; sharon.terlep@dowjones.com
(John Kell contributed to this article.)