By Shawn Langlois

SAN FRANCISCO (Dow Jones) -- Ford Motor Co., clinging to its position as the only domestic automaker not on federal life support, reported on Wednesday a 41% drop in March U.S. vehicle sales and posted a first-quarter production decline.

Ford (F) handed in monthly sales of 131,465 cars and trucks, down from 222,337 a year ago. Ford, Lincoln and Mercury brand car sales dropped 36.6% to 46,467 vehicles while the truck side saw a 43.7% drop to 78,640.

"I think I can say that we have been seeing some encouraging signs in recent weeks that the pace of economic decline could be moderating," Emily Kolinski Morris, Ford's senior economist, said in a conference call. These signs include stabilizing consumer confidence and improvement in some housing indicators, she explained.

Retail sales fell 36%, while sales to corporate buyers and rental car companies were down 50% as Ford continues its move away from relying heavily fleet customers.

The Volvo division, which is currently being shopped around as the only remaining brand of Ford's European carmaker stable, saw its total sales drop 31.4% to 6,358 vehicles.

Ford said that Ford, Lincoln and Mercury inventories at the end of March totaled 408,000 units, about 27% lower than a year ago.

The Dearborn, Mich.-based automaker produced 349,000 vehicles in the first quarter, a decline of 26,000 cars and trucks from a year ago.

Separately, Ford halted production at one of its two F-150 pickup truck assembly plants for three weeks in the face of slow consumer demand.

"Aligning production and inventory with demand is a key element of our strategy to strengthen our brand and improve customer value," said Jim Farley, head of marketing. "Our disciplined approach to the market in these challenging times helps us to minimize costly incentives that erode brand value while we're delivering our strongest-ever product lineup."

On the incentive front, both Ford and General Motors Corp. (GM) rolled out customer job-loss protection plans on Tuesday aimed at pushing hesitant shoppers into making the new-car plunge. Hyundai previously launched a similar approach, which helped the Korean carmaker avoid some of the hefty industry declines.

Ford was the first of the major automakers to report on what was sure to be another rough month for the industry. Analysts polled by Thomson Reuters are looking for a seasonally adjusted annual rate of sales of 8.9 million cars and trucks.

The tally came in at 9.12 million vehicles in February, which was the lowest level since December 1981, according to Autodata.

The monthly results, no matter how dismal, will still take a back seat to further speculation as to what's next for GM. With the CEO Rick Wagoner gone and a new deadline imposed by the White House, bankruptcy concerns are again dogging the company.

In fact, President Barack Obama reportedly said he believes a "quick and surgical" bankruptcy for GM is most likely the next step.