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Mexican auto production and sales continued to fall sharply in August from the year-ago month, although an improvement in U.S. demand limited the decline in exports, an industry group reported Tuesday.

The Mexican Auto Industry Association, or AMIA, said production fell 34% from August 2008 to 134,501 units, while exports were down 22% to 111,263 units, and domestic sales fell 32% to 58,926 units.

The drop in exports was smaller than in previous months, helped by the U.S. "Cash for Clunkers" program driving demand for new cars.

"The U.S. vehicle renovation program mitigated the drop in exports from our country," AMIA said, adding that exports to the U.S. fell 22% year-on-year last month.

In the first eight months of 2009, exports to the U.S. were off 38% from the same period in 2008.

"This apparent improvement should be taken with certain reservations," Mexico City's Vector brokerage said in a research note. "The question remains as to whether the U.S. recovery will be sustained, given that domestic demand is stagnant and won't be the motor that lifts the economy."

AMIA President Eduardo Solis reiterated at a press conference that the industry expects production for the full-year to be 30% lower than in 2008.

Auto production in the January to August period tumbled 40% from the year-ago period to 845,858 vehicles. Exports sank 38% to 686,824 units, while domestic sales fell 31% to 471,658.

"The adverse international economic situation continues affecting our exports and production," AMIA said, adding that weak consumer confidence is hurting sales in Mexico.

-By Paul Kiernan, Dow Jones Newswires; 5255-5001-5726; paul.kiernan@dowjones.com