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.

Ford Motor Co reported a 17 percent monthly sales gain on Tuesday and the success of the U.S. government's cash for clunkers trade-in incentives put industry-wide monthly sales on track for the first increase 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.

On the annualized basis tracked by the industry and investors, industry-wide U.S. sales appeared to have topped 14 million units in August based on initial sales results.

That would be the highest sales rate of 2009 although it remains off sharply from the 16 million sales rate that had held in the U.S. market until 2007.

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

Ford, the only U.S. automaker to avoid a federally sponsored bankruptcy, posted its second consecutive monthly sales gain and said signs of a recovery in truck demand pointed toward a broader recovery in the economy.

The No. 2 U.S. automaker said it had taken market share and reported the first increase in sales of its market-leading F-Series pickup trucks in almost three years.

Pickup trucks like Ford F-150 are widely used in the U.S. construction industry and represent one of the hardest-hit categories of vehicles over the past three years.

Ford chief sales analyst George Pipas said the rise in pickup truck sales appeared to reflect some increased spending on construction -- including projects funded by federal stimulus spending -- and steadier consumer confidence.

Standard & Poor's equity analyst Efraim Levy said Ford looked set to outperform some of its rivals in the wake of the clunkers program.

While we see some cannibalizing of '10 sales, we believe the impact could be less on Ford than some competitors, Levy said in a note for clients.

Toyota Motor Corp and Honda Motor Co were also 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 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.

INCENTIVES PROVIDE BOOST IN EUROPE

Car registrations in Italy were up almost 9 percent in August, including a rise of roughly 11 percent for Fiat. [nMAT009908]

Sales in the Italian market have been boosted in the past three months by both the success of a trade-in incentive program and an improvement in consumer confidence, industry representatives and analysts said.

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's 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 Patrick Fitzgibbons and Matthew Lewis)

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