(Corrects fourth paragraph to show Ford's sales gain was lower after including, not excluding, Volvo)

DETROIT - U.S. auto sales ticked higher in July in an uneven recovery that left Toyota Motor Co <7203.T> and Honda Motor Co <7267.T> sputtering with declines from strong year-earlier results.

By contrast, the two U.S. automakers run through government-funded bankruptcies last summer, General Motors Co and Chrysler, posted sales gains of 5 percent each.

Ford Motor Co only kept pace with a 5 percent gain excluding results for its now-sold Volvo brand, disappointing investors who had hoped for an outsized gain for the only U.S. automaker to have avoided a bailout.

Including Volvo, Ford's sales were up 3 percent.

Shares of Ford slipped in reaction to the sales results and were down 1.8 percent in afternoon trading on Tuesday.

Estimates for the annualized rate of sales in July were still preliminary but the tally appeared to have fallen short of more optimistic forecasts of analysts that would have made the month the strongest since last August when the market saw a sales surge driven by U.S. government trade-in incentives.

I would describe the results as relatively close to expectations, maybe a little bit weaker than what we had expected, said Paul Ballew, chief economist at U.S. insurer Nationwide in Columbus, Ohio.

We're dealing with a soft economic recovery so we are certainly not seeing sales sprint ahead by any stretch of the imagination, he said.


The biggest winners in a month marked by a gradual return in consumer demand were Korea's Hyundai Motor Co <005380.KS>, which posted a sales gain of 19 percent and said it was increasing production to meet demand, and Nissan Motor Co <7201.T>, where sales were up 15 percent.

Toyota, which had been a major beneficiary of the U.S. government's cash-for-clunkers sales incentive that began in the last week of July 2009, saw sales slip 3 percent.

It was the first sales drop for Toyota since February when it had stopped sales of popular models because of a series of safety recalls that rocked its reputation for quality in its largest market.

Sales for Honda were off 2 percent, the automaker's first sales decline since January.

Auto executives said the industrywide sales result for July eased concern that the U.S. economy could be tipping back toward recession after weaker-than-expected June auto sales.

In June, you had the feeling that maybe the industry wasn't out of the woods, and there was a lot of talk of a double dip. But June really seems to have been a blip, said Al Castignetti, head of Nissan brand sales in the U.S. market.

The stronger auto sales for July came as indicators for U.S. consumer spending and incomes for June were flat, data which economists said pointed toward a still-anemic recovery.

GM said its results underscored the progress it has made as a smaller company by reducing costly sales incentives and building momentum with a more balanced line-up.

GM's sales figures are expected to represent the last monthly sales update from the top-selling U.S. automaker before it files for a stock offering. The IPO is expected to reduce the U.S. government's GM ownership stake of 61 percent.

Sales of GM's four remaining brands -- Chevrolet, Cadillac, GMC and Buick -- were up almost 25 percent in July, a far larger gain than its overall 5 percent increase.

GM said it was keeping its forecast for full-year industrywide U.S. sales unchanged at 11.5 million to 12 million vehicles at the start of the second half.

I think it doesn't show we'll have incredible strength but it shows the recovery is still on track, said GM's U.S. sales chief, Don Johnson.


Chrysler, which will announce second-quarter results next Monday, said its July results showed it had weathered a stretch where it has had no new vehicles in showrooms.

Chrysler's just-launched Jeep Grand Cherokee saw a sales increase of more than 50 percent in its first month in showrooms.

Now operating under the management control of Fiat SpA , Chrysler expects to launch its IPO in 2011 and will roll out 16 new or redesigned vehicles starting this month.

Ford, which gained sales momentum by avoiding the U.S. government bailouts that GM and Chrysler took, has taken market share in its home market for 21 of the past 22 months.

Some analysts had been looking for a double-digit sales gain from Ford.

The No. 2 U.S. automaker said its more modest sales gain reflected a pullback in its sales to fleet operators, a volatile and generally less profitable category of sales than sales to consumers.

Fleet sales, which had accounted for 36 percent of Ford's sales in the first half, were down to 25 percent of the total in July, the company said.

Ford also cautioned its results -- and the whole industry -- would face a tough comparison when sales figures for August are released in a month.

In August 2009, U.S. auto sales shot above a 14 million annualized rate because of government-funded trade-in incentives of up to $4,500 per vehicle. By comparison, the sales rate in the first half of 2010 averaged just above 11.1 million for the industry.

We are certainly optimistic about our prospects for the third quarter, said Ford's U.S. sales chief Ken Czubay.

(Reporting by Soyoung Kim, writing by Kevin Krolicki, editing by Matthew Lewis)