General Motors, Ford Heat Up Incentives Battle After Double-Digit Sales Declines in June

DETROIT July 7, 2004; John Porretto writing for the AP reported that General Motors Corp. and Ford Motor Co. intensified their incentives battle Wednesday, dangling as much as $5,000 in cash for the purchase of some vehicles following disappointing sales in June.

The new offers were widely anticipated by analysts, who say the costly enticements are needed for the nation's two largest automakers to clear out bloated inventories and try to stem declining market share. Observers also say the new round of offers is likely to create heavy demand this month.

No. 1 GM upped cash rebates to $5,000 on most 2004 trucks and sport utility vehicles, and to $4,000 on most cars. The automaker also is offering interest-free financing for five years on most 2004 vehicles. The program runs through Aug. 2.

No. 2 Ford raised cash offers by $1,000 to $5,000 on the 2004 Freestar minivan and to $4,000 on the four-door 2004 Explorer SUV. Zero-percent financing for up to 60 months is available on a number of models, including the Crown Victoria, Focus, Taurus and F-150 Heritage. Ford's new deals are good through Sept. 30.

"The current situation looks very much like the inventory build-up that occurred in April, which was addressed in May by big incentive increases and tiny production cuts," Merrill Lynch analyst John Casesa said in a research report. "We expect the same response in July."

European automaker Volkswagen, whose U.S. sales were off 14 percent through June, said Wednesday it too would offer zero-percent financing for certain terms on its Jetta and Passat models in July.

VW in the past has been critical of the U.S. incentive skirmishes.

"We can't completely withdraw from the price war," said Fred Baerbock, a spokesman for the Wolfsburg, Germany-based company.

June's seasonally adjusted annual selling rate of 15.4 million units was the lowest since August 1998. GM and Ford were big losers, as their sales fell 15.6 percent and 11.5 percent, respectively, from a year ago.

Analysts said the results, in part, were a payback for better-than-expected sales in May and likely not a sign of a prolonged industry lull.

In a report Wednesday, analyst Chris Ceraso of Credit Suisse First Boston said total domestic vehicle supplies rose to 2.9 million units in June, nearly 15 percent higher than the three-year historical average for the month. Adjusting for market share losses over the past three years, Ceraso said Big Three stock levels are roughly 500,000 units, or 20.8 percent, higher than normal.

Hence the new round of incentives, which help spur sales but erode profits.

In his report, Casesa said the average incentive per vehicle rose 3.9 percent in June from a year ago to $2,979 -- the lowest monthly year-over-year increase in about two years.

Among Detroit's Big Three, GM's average incentive was $4,091 per vehicle, Ford's $3,679 and Chrysler's $3,659. The average Asian brand incentive last month was $1,533. The average European brand incentive was $2,792.

Collectively, Detroit's automakers saw their market share fall to 59 percent in June, down from 60.6 percent for the first six months of 2003, according to Autodata Corp. Chrysler, helped by the introduction of several new vehicles, has eked out a small gain in U.S. market share so far this year, while GM and Ford are both lagging year-ago figures.

GM and Ford are hopeful new vehicle launches scheduled in the second half of the year will spur business. Ford's offerings will include the new Five-Hundred sedan and redesigned Mustang. GM will add the Chevy Cobalt, a replacement for the high-volume Cavalier, and the Pontiac G6, which replaces the Grand Am.