Detroit price war seen targeting trucks, SUVs

December 5, 2002; Michael Ellis writing for Reuters reports that Detroit's automakers, already caught in a brutal price war, may have to offer even greater incentives to buyers of sport utility vehicles and pickups heading into next year as they try to boost sales in a weaker market.

General Motors Corp. and Ford Motor Co. have both announced higher truck production targets in North America for next year's first quarter, despite forecasts for falling industry sales and more competition from foreign automakers.

Inevitably, the world's two largest automakers will either have to cut production early next year or, more likely, increase already high consumer incentives as they battle to boost their share of the U.S. market, analysts said.

The Chrysler arm of DaimlerChrysler AG, which has not disclosed its production targets, will have to follow any move on incentives, analysts said.

"In our opinion they're setting up a game of light-truck 'chicken'," said Gary Lapidus, an analyst with Goldman Sachs. "Skyrocketing incentives on light trucks are the likely outcome, and that likely means a collapse in light-truck profits during 2003."

At Ford, incentives to consumers and dealers averaged $3,741 on each new vehicle sold in the United States in November, according to CNW Marketing Research, a Bandon, Oregon-based forecasting service. GM trailed slightly with an average of $3,582, while Chrysler averaged $3,288, CNW said.

Upward pressure on incentives will increase next year as sales soften, analysts said.

Paul Ballew, GM's director of industry sales analysis, said he expects U.S. light vehicle sales to fall by half a million cars and trucks next year to about 16.3 million or 16.4 million. Some Wall Street analysts believe sales could slide further to around 16 million, down from a record 17.4 million in 2000 and about 16.7 million expected this year.

November sales for GM and Ford fell sharply, and the companies ended the month with unusually high inventories of unsold cars and trucks. Still, both said Tuesday they planned to produce more trucks in the first quarter.

GM said it expects to produce 87,000 more trucks in next year's first quarter than in the year-earlier period, while Ford is targeting an increase of 50,000 trucks. Both automakers trimmed their North American production estimates for cars for the quarter.

High-profile vehicles

While Detroit's automakers have seen their share of car sales slip, they have staked their ground in trucks -- including SUVs, pickups and minivans -- which provide the bulk of their profits.

"Above-normal inventories and efforts to hit year-end market-share targets point to higher incentives," said Merrill Lynch analyst John Casesa.

Ford spokesman George Pipas said the bulk of Ford's higher truck production is the result of the slow ramp-up of production last year of its new Ford Expedition and Lincoln Navigator full-sized sport-utility vehicles.

"Our optimism can be understood by looking at how the Expedition is doing," Pipas said. November sales of the Expedition were the strongest since March 2001, he said.

But the overall truck lineup at both Ford and GM is aging and faces more competition from European competitors, analysts said.

The Ford F150 pickup truck, the best-selling vehicle in the United States, is in its last year of production before a changeover to a completely new model next fall, a move that usually leads to lost production and high incentives to clear out older models. Many of Ford and GM's other high volume trucks are also several years old.

Meanwhile, Nissan Motor Co. Ltd. will start production next fall of its first full-sized pickup truck at its new plant in Mississippi, becoming only the second foreign automaker to enter that market.

Foreign automakers continue to make headway into the SUV market. Japan's Honda Motor Co. Ltd. sold more than 8,000 of its new Pilot mid-sized SUVs last month, while South Korea's Kia Motors Corp. sold 3,330 of its Sorento SUVs