U.S. auto sales tumbled by 23 percent in September as showrooms emptied after the government-funded boom from the cash for clunkers program, with General Motors Co and Chrysler hardest-hit.

Sales for General Motors Co and Chrysler -- the two U.S. automakers struggling to regain momentum after emerging from bankruptcy -- dropped by 45 percent and 42 percent, respectively.

Ford -- the only U.S. automaker to have avoided bankruptcy -- managed to hold its sales decline to 5 percent from a year earlier despite low inventories and reduced incentives for car shoppers.

Automakers had braced for a sharp pullback in September after the clunkers program and taxpayer-funded credits of up to $4,500 drove sales sharply higher the month before.

The overall result was in line with those forecasts as industry-wide U.S. auto sales dropped 41 percent from August, according to Autodata Corp.

On the annualized basis tracked by analysts, industry-wide U.S. auto sales dropped to 9.2 million vehicles in September, the weakest sales rate since April.

In a reversal of fortune that underscores how deep the decline in U.S. auto sales has cut over the four-year-long slump, China's overall vehicle sales for September were almost twice as large as the industry-wide U.S. tally, according to an estimate provided by GM.

Meanwhile, U.S. sales for the three major Japanese automakers were also lower in September after gains in August during the short-lived cash-for-clunkers boom.

Honda Motor Co <7267.T> sales were down 20 percent in the month. Toyota Motor Co <7203.T> sales fell almost 13 percent. Nissan Motor Co <7201.T> sales were down 7 percent.

The auto sales data is not so worrisome. Rather, the market is concerned about the health of the U.S. economy and for Japanese automakers, the yen's moves, said Kazuyuki Terao, chief investment officer at RCM Japan in Tokyo.

Shares of Japanese automakers fell on Friday in a sell-off of exporters following weak U.S. economic data, with Toyota losing 3.1 percent, Honda dropping 2.7 percent and Nissan down 3.8 percent. <.T>

Consumer traffic at dealerships evaporated in the absence of the incentive program, which ended in August, Standard & Poor's equity analyst Efraim Levy said in a note. However, we expect the September lull to be temporary, as the comparisons get easier and we see the economy improving.

Hyundai Motor Co <005380.KS>, which has taken market share through the U.S. recession on a growing reputation for low-cost and high-quality vehicles, was the only big winner. Its sales jumped 27 percent in September.

Combined with its affiliate Kia, Hyundai now ranks as the sixth-largest automaker in the U.S. market, having outstripped Nissan over the first nine months of the year.

'FITS AND STARTS'

Major automakers held out hope for a gradual recovery in sales in the fourth quarter once dealer stocks of cars and trucks are built back up in the coming weeks and showroom traffic recovers from the slow pace of early September.

Sales in September 2008 were rocked by the collapse of Lehman Brothers and the financial crisis, events that pushed both GM and Chrysler to seek a federal bailout. With consumer uncertainty rising, sales in September a year earlier had dropped to a 12.2 million unit rate.

Ford economist Emily Kolinski Morris said the automaker believed that recent economic indicators and the monthly sales figures pointed toward continued gradual recovery albeit with some fits and starts.

Ford said it would step up its leasing program with dealers. Analysts said they expected the No. 2 U.S. automaker was poised to take more share from its rivals in the months ahead.

In the short term, I don't see much of change for GM and Chrysler in terms of sales declines. The No. 1 reason really is their product lineup, said Jesse Toprak, an analyst at Truecar.com.

The bigger question is whether they can restructure themselves to make money at lower sales levels -- it's going to be tough, obviously, he said.

Morningstar analyst David Whiston said the auto industry would face continued economic uncertainty in the months ahead.

With no government stimulus, you have a weak consumer who is reluctant to make a big-ticket purchase unless they have to, Whiston said. It's not just a Detroit problem.

'WE ARE NOT BLEEDING LIKE PEOPLE THINK'

Fiat SpA Chief Executive Sergio Marchionne, who has taken charge of Chrysler's turnaround plan after the Italian automaker took management control at the U.S. automaker, said reduced incentive spending had contributed to the depressed sales result for September.

We are not bleeding like people think we are, Marchionne told reporters.

Marchionne, who is due to detail his plans for a revival of Chrysler's vehicle line-up to Obama administration officials this week, said Chrysler would bounce back stronger, just as Fiat did five years ago.

The future is going to be a lot better, he said.

GM said it was sticking with plans to increase production in North America by 20 percent in the fourth quarter compared with the third quarter.

GM, which launched an ad blitz in September challenging consumers to compare its cars to rivals, remained the largest automaker by U.S. market share at 21 percent compared with 17 percent for Toyota, now No. 2 in the United States.

Clearly, the economy is starting to gain some momentum, said GM sales analyst Mike DiGiovanni. But we know it's still going to be bumpy and clearly the economy is still dependent on policy stimulus.

Auto industry tracking firm Edmunds.com estimated that the average discount on a new car was $2,557 in September, down about 12 percent from a year earlier.

That incentive spending is closely tracked by analysts and investors as a measure of the industry's pricing power and the pressure to move inventory.

(Reporting by Kevin Krolicki and David Bailey; additional reporting by Taiga Uranaka in Tokyo; editing by Matthew Lewis)

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