Auto sales rose only slightly in July as skittish consumers pulled back on car buying and threatened to derail the industry's fragile recovery.
With the economy weak, popular cars in short supply, and dealers offering few discounts, carmakers endured a third straight month of disappointing sales. Just over 1 million new cars and trucks were sold in July, up 1 percent from last July and flat with June.
Sales started strong this year but have slowed as the economy faltered and Japan's earthquake left Toyota and Honda dealers short of popular models. Unemployment rose to 9.2 percent earlier this summer, the highest level this year, and consumer confidence is shaky.
"We're still not back on the track of recovery yet," said Jeff Schuster, executive director of global forecasting at J.D. Power and Associates. "There's definitely some weakness kind of looming out there."
Adding to buyers' worries in July was the government debate over the debt ceiling. "Uncertainty, in our business, is always bad for consumers," GM Vice President of Sales Don Johnson said.
Both Ford and GM have scaled back their annual forecast for the year, saying U.S. sales are likely to be closer to 13 million instead of the 13.5 million they had hoped for.
Consulting firm AlixPartners estimates that unemployment and underemployment could cost the auto industry up to 1.5 million in lost sales this year. It believes sales will fall short 13 million. But John Hoffecker, head of the firm's automotive practice, said that's still a healthy recovery from 2010, when sales totaled 11.6 million.
He said automakers need to accept that the recovery could take longer than anticipated and shouldn't panic and resort to discounts to sell more cars.
The month wasn't a total loss. Sales of small cars such as the Kia Optima and Chevrolet Cruze rose sharply, as did sales of new, more fuel-efficient SUVs like the Ford Explorer. But truck sales were down, hurt by weakness in construction.
Detroit's automakers fared well, thanks to their lineups of new, fuel-efficient cars.
Sales rose 8 percent at General Motors Co., led by the compact Cruze, which gets 30 mpg. Ford Motor Co.'s sales rose 6 percent, thanks to small cars like the Fiesta, which saw sales rise 58 percent. Chrysler Group said its sales rose 20 percent over last July, helped by new products like the Jeep Grand Cherokee, which saw sales jump 76 percent.
July brought mixed news from Japanese carmakers. Production is recovering from the March earthquake, and dealers have more cars to sell than in the previous two months. Toyota's Camry was the best-selling car in the U.S., a title it lost in May and June because dealers had fewer cars to sell.
But Toyota's sales were still down 23 percent, and the company said North American production isn't expected to be back to normal until September. Honda Motor Co.'s sales fell 28 percent. Honda said it will be back to full production in North America this month.
The conventional wisdom has been that once supplies of Japanese cars are back to normal this fall, sales will rise. Also, sales could get a lift from people who are driving older cars and need to replace them.
So far, companies aren't offering the usual summertime deals to clear out older models. Companies spent an average of $2,418 per vehicle on incentives in July, down 15 percent from last July, according to TrueCar.com. But that could change when Japanese supplies are replenished this fall.