June 2003 New Vehicle Sales Stay Even in Spite of Crappy Economy

DETROIT, July 1, 2003; Tom Brown writing for Reuters reported that in spite of the crapy economy, hefty cash rebates and interest-free loans kept U.S. auto sales on an even track even though demand remained tepid.

With several major automakers reporting results by midday on Tuesday, industry analysts said June sales of new cars and light trucks were expected to come in at a seasonally adjusted annual rate of about 16.3 million to 16.5 million.

That would be up from a rate of 16.1 million in May -- thanks to what analysts describe as a discounting blitz of unprecedented consumer incentives -- but essentially flat versus 16.3 million in June last year.

Ford Motor Co.'s June U.S. sales fell 1.2 percent versus a relatively easy comparison a year ago, when its sales fell sharply. The results exclude heavy trucks and Ford's foreign nameplates Jaguar, Land Rover and Volvo, and were adjusted for sales days which improved the comparison with June 2002.

To cut bloated inventories Ford, the world's second-largest automaker, said last month that it was slashing third-quarter North American vehicle production by 15 percent.

General Motors Corp., the No. 1 automaker worldwide, was due to announce its June sales later on Tuesday. It too has cut third-quarter production, taking a direct hit to earnings, to bring down inventories in the face of flagging demand.

GM has led the U.S. auto industry in sales incentives and discounts since late 2001 in an effort to bolster sales after the Sept. 11 attacks on the United States.

Executives at Detroit's Big Three automakers, who acknowledge that incentives are destroying pricing power and profit, had hoped to cut back on givebacks once the U.S. economy turned around.

But the economy has yet to exhibit sustainable growth, as the Federal Reserve noted when it trimmed U.S. interest rates to 45-year lows last week. And auto sales, though still resilient, have slowed from much stronger levels at the end of 2002 amid the weak labor market, general economic uncertainty and so-called "incentive burnout."

The term refers to the fact that Big Three incentives, which rose to an average of more than $3,600 per vehicle in May, are now taken for granted by many consumers and are failing to draw them into showrooms.

While painting a gloomy outlook for Detroit, that could also weigh on economic improvement across the United States, since autos account for roughly one-fifth of U.S. retail sales.

Among foreign automakers, which have offered less aggressive discounts than their U.S. counterparts, Volkswagen AG (XETRA:VOWG.DE - News) said its June U.S. sales fell 21 percent.