Auto Sales Come in Huge

GM, Ford and DaimlerChrysler report double-digit gains.
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Updated from 2:36 p.m. EDT

Steep discounts supercharged U.S. sales at

General Motors

(GM) - Get Report

and its competitors alike in July.

GM said Tuesday its U.S. car and light truck sales rose 20% in July to 530,027 units. The results weren't as impessive as the 44% jump GM turned in last month, but still marked a significant improvement from the sales declines that plagued the automaker through May.

July was also productive for GM's competitors, who copied the "employee discount" promotion in an effort to keep pace.

Ford

(F) - Get Report

posted a 29% increase in U.S. sales of cars and trucks in July on big employee discounts, ending its 13-month losing streak. It sold 366,548 vehicles last month compared with 285,204 vehicles in the year-earlier period.

Also,

Daimler-Chrysler

(DCX)

said its U.S. sales rose 25% to 260,937 vehicles in July. Sales for its Mercedes brand rose 10% to 20,791 units while its U.S. Chrysler unit saw sales increase 27% to 240,146.

All three automakers have seen their market share in North America erode steadily in recent years at the hands of foreign competition. GM and Ford have watched their sales and earnings drop precipitously, and their credit ratings have been reduced to junk by several rating agencies.

Having previously said it would end the promotion after July, GM has reportedly reversed that decision, electing to continue the discounts through August. Both Ford and Chrysler said Monday they planned to extend their own employee discounts programs. They had been scheduled to expire this week.

"GM saw that Ford was continuing their program, and they still had a good supply of 2005 models that they needed to clear out, so they changed their mind," said George Mangliano, director of automotive industry research with Global Insight.

While the recent sales gains are a godsend for the embattled automakers of Detroit, the discounting activities have all the makings of a price war that could wreak havoc on the companies' profit margins. Despite this concern, the companies appear to be accepting lower profits in order stay abreast of the competition and clear out bloated inventories that have long plagued the industry.

"The risk here is that after everyone is sucked in to buy cars with these employee discount programs in June, July and August, who will be left to buy cars for the rest of the year?" said David Healy, analyst with Burnham Securities. "The question is whether the program added to total demand or whether it just moved it out of the fall into the summer. I'm leaning towards the latter."

GM also said Tuesday it would not reduce its controversial dividend payments to shareholders, even while it demands concessions from the United Auto Workers union from its healthcare obligations under its current labor contract, which expires in 2007. Shares of GM currently offer an annual dividend yield of 5.4%.

GM closed down about 1% Tuesday, while Ford rose 0.3% and DaimlerChrysler added 2.8%.