U.S. auto sales rose about 19 percent in May, a rebound from depressed year-earlier levels that still leaves the industry sputtering at the lowest sales rate since the 1980s more than half a year into a grudging recovery.

Toyota Motor Corp <7203.T> lagged with a nearly 7 percent sales gain after opting to keep sales incentives largely flat from the generous discounts that won buyers in March and April.

By contrast, Ford Motor Co outperformed rivals with a 22 percent sales gain, taking market share along with Hyundai Motor Co <005380.KS>, which posted a 33 percent gain, and the Subaru brand, which saw a 35 percent sales rise.

Industry-wide U.S. auto sales have been ticking higher for seven consecutive months but remain well below the rate at which analysts forecast that older cars and trucks are being scrapped and taken off the roads.

The May auto sales results represent one of the earliest snapshots of still-cautious state of consumer demand in a month marked by financial market volatility and renewed questions about the strength of the U.S. economic recovery. (Graphic: http://link.reuters.com/mez77k)

GM sales were up 17 percent from sales a year earlier when the top U.S. automaker was sliding toward a U.S.-government funded bankruptcy. Chrysler, which was already operating in bankruptcy last May, reported a monthly sales gain of 33 percent.

Nissan Motor Co <7201.T> reported a 24 percent sales gain but said the month was marked by a renewed sense of caution by consumers watching the job market and housing prices.

The month of May seemed to me to mark the return of some bad economic news, said Al Castignetti, who heads Nissan brand sales in the United States.

Bob Carter, general manager of the Toyota brand in the U.S. market, said showroom traffic had dipped in the middle of the month but recovered by the Memorial Day weekend.

Toyota, which plans to roll out a new advertising campaign touting its investment in safety technology, expects overall 2010 industry sales near 11.5 million vehicles, Carter said.

Honda sales were up 19 percent, in line with the industry-wide gains.

Ford, which has gained share of consumer sales at showrooms for 19 of the past 20 months, said it was raising its current quarter production plan by 2 percent to meet demand for models like the Edge crossover, the Fusion sedan and its F-Series pickup trucks.

Separately, Ford detailed plans to drop its Mercury brand in the fourth quarter of this year.

The move to kill Mercury after years of declining sales confirmed Ford Chief Executive Alan Mullaly's sharpened focus on the Ford brand, the automaker's only international brand.

BMW , which saw a parts shortage halt shipments of most of its 2011 model vehicles in May, reported a sales decline of almost 4 percent for the month.

Before the most recent recession, U.S. auto sales had held above the 15 million sales rate level since 1998. Sales spiked as high as an annual rate of 21.8 million in October 2001. Analysts estimate that about 13 million cars and trucks are scrapped annually and see sales at or above that level as a more normal trend.

STEADY, NOT SPECTACULAR

Major automakers said they expected overall sales to be around 11.5 million on an annualized and adjusted basis.

That would be up from the 11 million sales rate that had held from January through April, and up from the 27-year low of 10.4 million sales recorded in 2009.

But the retail component of industry-wide sales was expected to be near 8.8 million vehicles in May, down slightly from 8.9 million in April, a GM representative said.

Both GM and Ford said that preliminary tally for industry-wide demand suggested a continuing but grudging recovery from the collapse that hit the industry a year ago.

We had never expected a V-shaped recovery, said GM U.S. sales chief Steve Carlisle.

Even so, GM said May results pointed toward the initial success of its turnaround plan in the year since it filed for Chapter 11 bankruptcy protection in June 2009.

The automaker is aiming for an initial public offering as soon as this year to reduce the U.S. government's ownership stake of nearly 61 percent. Sales of the four brands kept by the reorganized GM -- Chevrolet, Cadillac, Buick and GMC -- were up 32 percent in May.

The GM sales gain came in the absence of any substantial increase in the kinds of costly incentives -- including zero-percent financing -- that GM had relied on to boost sales and support production before bankruptcy.

In a sign of the automaker's success in holding the line on pricing, GM said its average vehicle transaction price was up $3,300 in the year to date compared with an industry-wide price increase of just $1,600.

GM's sales through showrooms were up 11 percent in May from a year earlier. The remainder of the gain came from sales to fleet operators, including rental agencies.

That category of fleet sales, which is considered less profitable than retail sales, represented about 38 percent of GM's total sales in May.

In May, the S&P 500 index <.SPX> fell more than 8 percent in its worst monthly slide since February 2009 as investors reacted to the threat that the European debt crisis could trigger a renewed slowdown in the U.S. economy.

GM's Carlisle said the automaker did not expect the market decline to point to another drop in the U.S. auto market, which declined for four consecutive years through 2009.

(Reporting by Soyoung Kim, Kevin Krolicki and David Bailey; editing by Matthew Lewis)

Ford Motor Company Toyota