Incentives Boost December U.S. Auto Sales

DETROIT, Dec 27, 2002; Justin Hyde wrting for Reuters reported that after a weak performance in the previous two months, U.S. auto sales are expected to rebound in December as General Motors Corp. and Ford Motor Co. battle for market share with a phalanx of rebates, interest-free loans and other offers.

DaimlerChrysler AG's Chrysler arm triggered the latest escalation midway through November, when it brought back interest-free loans with terms up to five years on its sport utility vehicles. GM, which has a goal of growing its U.S. market share this year, responded by offering zero-percent loans with rebates on a wide swath of vehicles; usually buyers can take a loan deal or a cash rebate, but not both.

Ford replied, first with loan deals on its Explorer SUV, and more recently with cash-and-loan offers on a variety of vehicles, including many F-Series pickups and the Escape SUV.

Analysts now estimate that GM is spending more than $3,000 per vehicle in incentives, with Ford and Chrysler not far behind.

Those deals, along with end-of-year promotions from other automakers, including Toyota Motor Corp. and Nissan Motor Co. Ltd. should push December sales to a seasonally adjusted annual rate of about 17 million, according to a survey of Wall Street forecasts. That would compare with a 16.5 million rate in December 2001.

"Sales are going to be way up," said Jim Schroer, head of sales and marketing for Chrysler. "There will be a huge week between Christmas and New Year's."

While 2002 may end on a high note, with total sales of about 16.7 million, December's blowout could mean trouble for the first few months of 2003, with the pool of available consumers picked clean. After the industry pushed sales with strong incentives in July and August, sales tumbled in September and October.

"To the extent that December's sales are 'juiced' by expiring incentives, a January hangover will follow," said David Healy, an analyst with Burnham Securities.

ABLE, BUT NOT WILLING

If auto sales do perform up to expectations in December, they will be the exception among retailers, many of whom have lowered hopes for a strong holiday season. That has raised worries about the continued health of the U.S. economy, two-thirds of which is based on retail sales.

For 2003, most automakers are predicting continued economic growth and a slight decline in auto sales to about 16.5 million. But some of their production schedules would suggest a stronger pace. While most of the current deals from Detroit expire a few days into January, a new round is expected to take their place.

The real question appears to be how much allure those incentives can carry with consumers who have seen a parade of deals since September 2001. Analysts say that while the economic indicators that support car buying appear relatively healthy, consumers may finally be tiring of shopping for cars and trucks.

Art Spinella, an industry analyst with CNW Marketing Research, conducts an annual survey of consumers in which he asks about plans for spending on items that cost more than $2,500. This year, the number of people who listed buying a new car in 2003 as a priority fell by 28 percent from 2002.

In addition, Spinella said, automakers also face a smaller pool of buyers who must get a new vehicle, such as lease buyers and business fleets.

"The big question is if consumer sales will, indeed, remain steady. Unfortunately, the answer seems to be 'no'," Spinella said in a research note. "Not only are there overall fewer new-car (buyer) prospects, but the starting point for sales ... has shrunk."