U.S. auto sales boomed in August as consumers burned through $3 billion in government incentives, leaving automakers to contend with both inventory shortages and uncertain demand in the months ahead.

Major automakers were set to report final sales figures for August later on Tuesday, but the success of the U.S. government's cash for clunkers trade-in incentives stoked expectations that industry-wide monthly sales could see the first gain since October 2007.

Meanwhile, France saw a 7 percent gain in August car sales and the French government said it would continue to fund its program to encourage consumers to swap out of old cars into 2011.

The now-exhausted U.S. clunkers program, which was inspired by the programs in France and other European markets, drove a rush to dealerships in late July and the first three weeks of August.

More than 690,000 vehicles were scrapped in the United States for taxpayer-funded credits of up to $4,500 as consumers took advantage to drop gas-guzzling trucks and SUVs.

The biggest winners in the U.S. sales bonanza were major Asian automakers and Ford Motor Co, which benefited from a stronger lineup of smaller cars and crossover vehicles.

Ford, Toyota Motor Corp and Honda Motor Co were expected to post double-digit percentage increases in monthly sales.

But the short-lived sales rush also ran down dealer inventories of popular vehicles like the Toyota Corolla, Honda Civic and Ford Focus and raised the risk of an equally abrupt drop in demand in September and the remainder of the year.

Chrysler, the first major automaker to report U.S. sales, saw a 15 percent fall in August. The company, now under control of Italy's Fiat, lost potential sales when dealers ran short on some models after it shut down all of its production during a bankruptcy process that ended in June.

Chrysler said it would offer cash rebates of up to $4,500 or zero percent financing on 2009 models and $2,000 cash rebates on select 2010 model year vehicles in September in advance of an expected renewed slump in overall sales.

FRANCE AIMS FOR A SOFT LANDING

In Europe, carmakers have called for a gradual phasing out of government-funded sales incentives to prevent abrupt sales declines when the programs end.

French Economy Minister Christine Lagarde said the program there would continue for another two years in 2010 and 2011.

As successful as it has been ... we need to be successful in pulling out, she told Reuters. We are looking at two fiscal years to make it truly gradual.

For August, France's biggest carmaker, PSA Peugeot Citroen, saw a 17 percent increase in group sales in August. Renault group sales rose 11 percent.

Spanish car sales stabilized in August after 16 months of consecutive declines. Spain launched a 200 million euro ($429 million) subsidy plan. Car sales for Germany, Europe's biggest market, are due on Wednesday.

In Japan, sales fell 0.5 percent.

In Korea, Hyundai gained more ground. Hyundai Motor sales climbed 25 percent and affiliate Kia Motors Corp's sales were up 4 percent.

But GM Daewoo unit, which is seeking new financing from the state-backed Korea Development Bank, posted a sales decline of almost 23 percent.

(Reporting by Shin Jieun, Jason Webb, Devidutta Tripathy, Crispian Balmer, David Bailey and Soyoung Kim; Writing by Helen Massy-Beresford; Editing by Will Waterman, Patrick Fitzgibbons and Matthew Lewis)

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