By Bernie Woodall and Deepa Seetharaman
DETROIT (Reuters) - Auto sales rose slightly in August from a month earlier, defying forecasts for a slowdown in a month that began with a plunge on Wall Street and ended with an East Coast hurricane.
Detroit automakers posted double-digit percentage gains from year-earlier sales, helped by stronger sales of newer small cars like the Chevrolet Cruze and more fuel-efficient SUVs including the Ford Escape.
But shares of both General Motors Co and Ford Motor Co closed lower, and analysts cautioned that the Detroit Three could face a payback in the months ahead as their major Japanese rivals fight to make up for lost ground.
Honda Motor Co and Toyota Motor Corp were the big losers in August, hurt by inventories that were depleted by the March earthquake in Japan. Toyota's U.S. sales fell 13 percent last month and Honda's tumbled 24 percent.
Executives said the industrywide sales pointed to an encouraging stability in demand for big-ticket purchase at a time of deep economic uncertainty.
Still, some analysts cautioned there was a risk the industry would be caught out if demand flattens over the remainder of the year.
GM reported a sales gain of 18 percent from year-earlier levels. Ford sales were up 11 percent. Chrysler had its best August sales in four years with a 31 percent sales increase.
"The auto sales numbers were comforting. The message here is that we're not facing a double dip. On the other hand, we're not sprinting ahead either," said Paul Ballew, chief economist with insurer Nationwide. "The industry is crawling."
GM shares closed down 4.2 percent at $23.03 on Thursday, while Ford shares closed down 2.4 percent at $10.85.
Sales for Nissan Motor Co rose 19 percent. Sales for Volkswagen AG were up 10 percent
The slow month for Toyota allowed Chrysler, controlled by Fiat, to overtake the Japanese company for the No. 3 spot in the U.S. market for the month.
U.S. consumer confidence sank in August as more Americans became worried about the threat of a renewed recession. The month began amid wrangling over the government debt ceiling and a sharp decline in the stock market.
"In our view, consumers are being cautious, yes, and rightly so, but they are not retrenching," said GM's head of U.S. sales, Don Johnson. "You have to remember that the sales we're seeing are very low by historical standards."
The Detroit automakers have benefited from the weakened sales position of Toyota and Honda in recent months, but that window will close as Toyota pushes back over the rest of the year with increased production and new discounts, Ballew said.
"Give the Detroit automakers credit but some of the open space they've had here is going to go away," he said.
Morgan Stanley analyst Adam Jonas also said investors could be growing concerned that GM had not throttled back on production in the face of the risks to the U.S. economy.
"The market may be concerned that GM is 'playing chicken' with the macro environment and could get caught out with large production cuts and/or price discounting should the underlying market not recover as GM appears to have anticipated," Jonas said in a note.
At the end of the month, typically a crucial time for auto sales, Hurricane Irene hit the East Coast. Industry tracking firm Edmunds.com estimated that the storm cut overall sales by about 10,000 vehicles.
GM estimated that it had lost about 1,000 sales during the month.
Nissan estimated that the storm had cost it about 3,300 sales for its mainstream and Infiniti brands because of its relatively heavy exposure to sales in the Northeast.
"The economic news never impacted me during the month. What did impact me was losing the last weekend on the Eastern Seaboard," said Al Castignetti, who heads Nissan brand sales in the United States.
Industrywide sales rose almost 8 percent from a year earlier and were up 1 percent from July. On the annualized and adjusted basis tracked by forecasters, the sales rate for August was 12.12 million vehicles.
Industrywide spending on sales incentives was almost flat in August from a month earlier, analysts said.
Many analysts expect deeper discounts in the months ahead as Japanese automakers shore up inventories and look to make up for lost ground in the U.S. market.
The deeper discounts would come at a time when overall demand is expected to be flat or only up slightly. "We're not going to see things getting worse, but we're not going to see a major improvement either," said TrueCar.com analyst Jesse Toprak.
Toyota is introducing an all-new version of its top-selling Camry sedan. Toyota has cut prices on the 2012 Camry and it is offering zero-percent financing and cash incentives on the older model.
Toyota said it would start the selling this month, accelerating a launch that had been planned for October.
Honda said it had returned to full planned production at all of its U.S. factories by late August.
(Reporting by Bernie Woodall and Deepa Seetharaman, writing by Kevin Krolicki, editing by Matthew Lewis)