U.S. light-vehicle sales are forecast to improve in the third quarter from a disappointing second quarter, as auto makers conduct the annual inventory housecleaning now typical of the summer months.

Ward’s forecasts July-September to post a 16.9 million seasonally adjusted annual rate (SAAR), a sharp increase from the estimated 16.4 million SAAR of April-June, but well below year-ago’s 18.0 million and the lowest for the period since 16.1 million in 2001.

The second-quarter SAAR will be the lowest for that period since the identical figure was recorded in 2003.

Related document: <i>Ward's</i> U.S. Third-Quarter 2006 Light Vehicle Sales Forecast by Company

Unexpectedly slower Big Three sales during the second quarter have caused some inventory gluts that will lead to summer bargains and new marketing ploys to clear out excess ’06 models before the bulk of the ’07s become available in October.

However, the incentives likely will not be enough to spark the quarter to the 17.4 million SAAR it has averaged over the prior four years.

July-September does have potential to do better if there is higher-than-expected pent-up demand from customers waiting for the traditional summer deals. Market leaders General Motors Corp. and Ford Motor Co. have been cutting back on incentives throughout the first half of the year, and that may have more buyers than normal waiting in the wings.

Also, the economy could provide a boost, because third-quarter growth in general should rebound from the second quarter’s sluggish rate. More specifically, recent unemployment trends have been favorable, and if the jobs picture continues to improve nationally, it could help raise demand for new vehicles.

In addition, it is possible the Federal Reserve will stop increasing interest rates (at least short term), which could boost business and consumer confidence, jumpstart the stock market and brighten the new-vehicle sales outlook.

For incentives to drive demand significantly upward, they will have to pinpoint pickups, the second-largest segment in the industry. Market share for the sector has been in decline over the last four quarters, partly due to higher fuel prices that have shocked consumers at the pump and eroded disposable income, causing buyers to defer purchases.

Some pickup intenders may be holding off until GM’s redesigned Chevrolet Silverado and GMC Sierra fullsize models hit the market in the fourth quarter or the new Toyota Tundra bows in early 2007.

Small and Middle cars posted strong market-share growth in the second quarter and are likely to see increased penetration again in the third quarter, a result of higher fuel costs and an influx of new or redesigned products such as the Ford Fusion, Honda Fit and Toyota Camry and Yaris.

However, the impact on volume might not be as great, because penetration of those segments, in general, tends to decline for seasonal reasons in the July-September period from the second quarter.

Actual third-quarter volume is forecast at 4.42 million units, 4.1% below July-September’s 4.61 million.

Among the Top Six companies, only American Honda Motor Co. Inc. (3.2%) and Toyota Motor Sales U.S.A. Inc. are forecast for increases. Both auto makers also will have record market shares for the period.

Each of the Big Three is forecast for a decline, although comparisons with year-ago are somewhat unfair because of the huge upward spike in volume caused by widespread employee-discount programs last year. Nonetheless, GM and Ford will suffer long-time market-share lows for the period.

Inventory, which will finish the second quarter at an estimated 3.78 million, is forecast to end September at 3.35 million units, 10.5% above year-ago.

GM inventory is forecast at close to one-third above like-2005. Again, that comparison is skewed because the unplanned huge sales volumes the industry recorded a year ago sapped inventory from GM – and to a lesser degree from Ford and DaimlerChrysler AG – to an historic low.

Excluding last year, forecast third-quarter inventory will be the lowest for the period since 3.01 million in 2002.

Inventory of domestically made light vehicles is forecast to end September at 2.87 million, 12.4% above like-2005. That number will be somewhat on the high side for expected demand in October-December and likely translate to a dampening of fourth-quarter North American production, unless the economy surges.