Chrysler LLC and Ford Motor Co on Thursday reported double-digit drops in October sales, lagging rivals in a slumping U.S. market widely expected to remain under pressure into next year.

Chrysler, which also announced plans to slash one-fifth of its factory work force and cut four slow-selling models, posted a 12 percent drop in monthly sales that was deeper than analysts had forecast.

Ford recorded a 13 percent monthly decline, reflecting a cutback in low-margin sales to car rental agencies as part of its own ongoing restructuring aimed at restoring its U.S. operations to profitability.

By contrast, Toyota Motor Corp snapped out of a quarter-long slump to post a slight gain in U.S. sales, eclipsing Ford to hold onto the No. 2 spot in the world's largest vehicle market.

Sales for industry-leader General Motors Corp were down almost 1 percent for October, outperforming a broad market it said had likely contracted almost 4 percent.

Major automakers said the slumping U.S. housing market, higher gas prices and wildfires in California had all combined to crimp sales in October despite signs that vehicle demand had steadied from an even rockier summer.

I think it's fair to describe the industry as facing a number of challenges and that's showing up in performance, said GM chief sales analyst Paul Ballew.

Toyota squeaked out a gain of less than 1 percent, snapping a three-month streak of lower sales as showroom traffic in the Midwest and elsewhere offset a continued slump in California.

Honda Motor Co reported almost flat results, with October sales off 0.2 percent. Nissan Motor Co Ltd bucked the downtrend to post an almost 9 percent sales gain.

The Ford sales decline was largely in line with cautious Wall Street expectations. The automaker said it had held retail market share around the 13 percent level it has built into its turnaround plan.

But Chrysler said its weak October results underscored the need for the sweeping cost-cutting it unveiled on Monday. The accelerated restructuring plan marked the first major strategic overhaul since the automaker was taken private by Cerberus Capital Management in August.

We're seeing growing concern about the housing slump showing up in consumers' expectations about future economic conditions and that's showing up in auto sales, said Darryl Jackson, Chrysler's vice-president of U.S. sales.

CALIFORNIA IN FOCUS

The October results underscored the importance of sales in California for Japanese brands such as Toyota, which dominate sales in the most populous U.S. state and the largest single market for new cars and trucks.

In Southern California, wildfires crimped a key market already impacted by the housing downturn, said Jim Lentz, Toyota's executive vice president of U.S. sales.

Nissan said there was evidence that retail sales had slowed in the last 10 days of the month, at about the time Southern California was hit by fires that drove some 500,000 people from their homes.

The last 10 days were definitely slower, said Mark McNabb, Nissan's senior vice president for U.S. sales.

On an industry-wide basis, McNabb said the U.S. market appeared to be headed for a 2007 sales tally of about 16 million vehicles. That would mark a roughly 3 percent decline from 2006 when sales totaled 16.5 million vehicles and mark the weakest result for the industry in almost a decade.

Even so, McNabb said there were signs the market had steadied after an unexpectedly weak July, when credit concerns were blamed for undercutting auto sales and raising concerns of an even deeper slump.

One still-debated question is whether the U.S. market will recover significantly in 2008.

GM's Ballew said the number-one U.S. automaker was assuming that 2008 would be flat versus this year's depressed levels.

Right now we're assuming it's going to be pretty much a replay, Ballew said. The industry will probably end up looking a lot like where we end in 2007.

By contrast, Toyota executives said the Japanese automaker was still banking on a gradual recovery next year, although they said that forecast would be reviewed in light of the weakness in key markets such as California and Florida.

Sales results for the major automakers were adjusted for an additional selling day in October compared with the same month a year earlier.

(Additional reporting by Jui Chakravorty and Poornima Gupta)

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