US carmakers set to launch new incentives

Toronto November 8, 2004; Bernard Simon writing for the FT reported that the "big three" US carmakers are poised to unleash another barrage of buyer incentives in the wake of an unexpectedly sharp build-up in their inventories.

General Motors, Ford and DaimlerChrysler ended last month with the highest combined inventories for October in more than a decade.

GM's market share in the US slumped to 25.4 per cent, from 31.4 per cent at the end of September, lifting its stock of unsold vehicles to 95 days' supply, from 61 days a month earlier. In the case of some models, including GM minivans, the Chevrolet Suburban sport utility vehicle and the Saturn LS sedan, inventories stand at more than four months' supply.

GM said late last month it would temporarily shut five US plants in early 2005, mainly to trim supplies of SUVs and pick-up trucks. Still, Ronald Tadross, analyst at Banc of America Securities, said that with production approaching break-even levels, "it won't be too long before GM opts for lower pricing. Ford and Chrysler would have to follow."

According to John Casesa, analyst at Merrill Lynch: "We expect escalation in the incentives war, likely in December." He estimated the North American industry had about 446,000 cars and trucks on hand beyond normal requirements. Ford's inventories grew to 89 days' supply at the end of October, from 74 a month earlier. DaimlerChrysler's market share improved in October, but its stocks rose from 69 to 93 days' supply.

If Ford's market share of 18.4 per cent in the first 10 months of the year remains the same in November and December, it will be at its lowest level for a full year since 1928.

Besides unsold 2004 vehicles, the three companies are rolling out a flood of new models this autumn to stimulate buyer interest. The bulky Chrysler 300 sedan has so far been the star performer.

GM led an unprecedented surge in incentives in September, including zero per cent financing for up to six years on some models. Advertising campaigns have also mushroomed.

According to Autodata, a market research group, GM offered an average incentive of $4,051 per vehicle in October, compared with $698 for Honda and $624 for Toyota. Ford and DaimlerChrysler each gave away about $3,500 per vehicle.

Asian and other foreign carmakers are gaining market share and their inventories are far lower than their Detroit-based rivals. BMW's inventories totalled only 27 days' supply at the end of October, with Toyota at 40 days and Honda at 46 days.