* US retail sales down 17 pct, fleet sales down 29 pct

* Inventories down sharply from a year earlier

General Motors Co [GM.UL] posted a 20.2 percent drop in U.S. sales in August from a year earlier, the highest sales of the year, supported by the U.S. government's cash for clunkers incentive program, the automaker said on Tuesday.

GM, which emerged from bankruptcy as a state-owned automaker in July, said U.S. sales fell to 246,479 vehicles in August, down from 308,817 a year earlier when an employee pricing incentive promotion supported the automaker's sales.

Retail sales fell 17 percent from a year ago and fleet sales were down 29 percent.

GM's results stand in contrast to a 17 percent sales gain at U.S. rival Ford Motor Co (F.N) in August. Chrysler sales fell 15 percent in August.

In August, GM announced plans to increase North American production in the second half of 2009 due to a surge in sales from the clunkers program. The automaker added 60,000 vehicles of production for the third and fourth quarters.

GM said U.S. inventory stood at 379,000 vehicles at the end of August, down about 357,000 from a year earlier. (Reporting by David Bailey, editing by Leslie Gevirtz)