'We're in a period that feels a lot like 1991-1992' when high gas prices and a weak economy battered the industry, said Mike DiGiovanni, GM's director of global market analysis.

 

Hopes for a second-half recovery were dashed as GM's sales slid 26.1 percent in July -- a decline that would have been even greater if the month didn't have two more selling days than July 2007.

 

Toyota Motor Co., the No. 2 player in the market, reported an 11.9 percent drop, while Ford Motor Co.'s sales fell 14.7 percent. Honda Motor Co.'s sales dipped 1.6 percent -- but moved the Japanese automaker well ahead of Chrysler in the rankings after the Auburn Hills automaker's sales slid 28.8 percent.

 

Bucking the trend, Nissan Motor Co.'s sales rose 8.5 percent, with consumers snapping up its small Sentra and Versa cars.

 

Luxury automakers also proved resilient, with Daimler AG's Mercedes-Benz and Tata Motors' Jaguar brand reporting double-digit gains.

 

But the overall industry has contracted more and faster than anyone anticipated at the start of the year. The annualized selling pace in July fell to 12.55 million vehicles -- the weakest since April 1992, according to Autodata Corp.

 

Gas prices are causing a permanent shift in the industry.

 

'It's physiological,' said George Magliano, automotive analyst with Global Insight Inc. 'Consumers are not just shifting away from trucks and into cars, (fuel prices) are turning people off to spending a significant amount of money on anything that uses gasoline.'

 

Even the strongest players are struggling as year-over-year sales have fallen for 14 consecutive months.

 

Many auto executives and forecasters now expect the weakness will persist in 2009, although GM and Toyota sales managers said they believed there will be some improvement next year.

 

'We believe we have a decent chance for recovery in 2009,' DiGiovanni said. 'Outside housing and autos, the economy has remained more resilient than anyone expected.'

GM sees car sales fall

GM's performance was bleak in July as the automaker ran short of fuel-efficient cars like the Chevrolet Aveo and had too many of its big vehicles sitting on dealers' lots.

 

Industry sales of full-size pickups fell 27.9 percent last month and large SUV sales were down 42.5 percent.

 

GM's car sales were 12 percent lower because the automaker couldn't provide enough to meet demand.

 

Only one Ford vehicle -- the compact Ford Focus -- posted a sales increase of 15.6 percent.

 

The credit market hurt Ford and sales industrywide, said Ford Marketing Chief Jim Farley. Lenders are shying away from writing loans to riskier buyers and moving away from leasing for all consumers.

 

'Going forward, the unfolding credit situation will take center stage,' he said. 'Leasing will become a smaller part of our business.'

 

Chrysler continued to set the pace for sales losses among major automakers in July.

 

Executives said lower fleet sales contributed to the dip, but the automaker saw steep declines for many of its SUVs, including the Dodge Durango and Jeep Grand Cherokee, once high-volume sellers.

 

'In 38 years in this business, this is the most challenging time I've ever seen,' said Chrysler Vice Chairman and President Jim Press.

 

He said the industry is rapidly contracting after low fuel prices and a strong housing market buoyed sales for nearly a decade.

Toyota trucks sit on lots

Toyota recently said it expected its U.S. sales to decline for the first time in 17 years after lowering its annual forecast.

 

It is also scrambling to increase supplies of small cars in high demand, such as the Corolla compact and the Prius hybrid. But demand for its Tundra has dried up -- Toyota's full-size pickups spend 100 days on average on dealer lots.

 

'The industry decline is in trucks and SUVs,' said Bob Carter, group vice president at Toyota Motor Sales USA and general manager of the Toyota division. 'We're not immune from that.'

 

Honda's sales slipped in July after rising in June. The automaker's truck sales are down and it is running short of Civic compacts, which have been very popular. 'The uncertainties in the market have been quite profound in the past few weeks,' said Dick Colliver, executive vice president of sales at American Honda Motor. 'We are adjusting our production to meet the rapidly changing needs of buyers.'

Car availability a factor

Automakers said that limited availability of small cars depressed the overall market.

 

Industrywide, dealers had less than a 30-day supply of small cars while they had more than a 140-day supply of full-size trucks such as the Ford F-150, Ford's Farley said.

 

Ford, GM and Toyota have announced plans to increase small car production.

 

'Small car constraints cost the industry as a whole 200,000 or 300,000 units,' GM's DiGiovanni said.

 

Slumping sales, combined with bloated inventories could mean record-incentives for trucks and SUVs this month, said Jessica Caldwell, industry analyst at Edmunds.com.

 

Chrysler announced Friday that it's extending zero percent financing to more models, including the compact Dodge Caliber. The offer previously was limited to SUVs and pickups.

 

GM will continue its employee discount plan into August.

 

'Incentives on trucks will keep rising -- there's a dealer in Florida offering 'buy one large SUV, get a small car free,'' Caldwell said.

 

But even deals won't likely stem the tide next month.

 

'We hit another low in July, but we say that every month,' she said. 'That's an indication that we haven't hit the bottom yet.'