GM, Ford See Weak Sales Plan Production Cuts

DETROIT November 29, 2004; Mochael Ellis writing for Reuters reported that General Motors Corp. and Ford Motor Co. are expected to announce further cuts in vehicle production levels this week as they move to trim inventories of unsold cars and trucks following weak sales, analysts said.

GM and Ford are expected to cut North American production by about 6 percent for the first quarter of 2005, said Ron Tadross, an analyst with Banc of America Securities .

"The industry inventory levels are a little high, so we would expect to see some conservatism in the first-quarter schedules," Paul Ballew, head of sales and industry analysis, told Reuters. He declined, however, to give a forecast for production levels.

GM and Ford both cut fourth-quarter production but vehicle inventories remain high.

Automakers are scheduled to report November U.S. vehicle sales on Wednesday, when GM and Ford are also expected to release their forecasts for first-quarter vehicle production. Production levels directly affect the bottom line because automakers account for earnings from vehicles when they are produced rather than when they are sold from dealer lots.

GM, in particular, has tried to cut inventories with a new round of incentives, including its "Lock and Roll" offer announced on Nov. 10, which allows consumers to lock in a finance rate on both a new model bought in November and another GM car or truck bought years later.

However, analysts said the program failed to boost GM's sales as much as past incentive offers.

"This program was conceived to drive showroom traffic and to move leftover 2004 units, but we don't think it's been very effective," Merrill Lynch analyst John Casesa said in a research note.

PRODUCTION CUTS

Automakers are beginning to shy away from raising incentives further, believing it is less costly to cut production, said David Healy, an analyst with Burnham Securities.

GM expects industry sales in November to be flat or slightly stronger vs. last November's seasonally adjusted annual rate of 16.9 million, Ballew said.

"November is shaping up to be OK. It looks like probably flat for the industry vs. year-ago November, maybe up a little bit," he said.

Other analysts are more pessimistic, however, with estimates ranging from an annual rate of 16.3 million to 16.6 million.

GM's sales are expected to drop about 6 percent from strong year-earlier levels, analysts said.

Several analysts said they expect Ford sales to drop slightly, falling for the sixth month in a row. However, Healy said Ford sales could climb about 3 percent, helped by new models such as the Five Hundred sedan and the Freestyle crossover wagon.

The Ford brand and GM's Chevrolet brand are locked in a tight battle for the title as the top-selling U.S. brand. Through the first 10 months of this year, Ford led Chevrolet by 20,751 vehicles.

Sales for the Chrysler arm of DaimlerChrysler AG are seen climbing slightly, boosted by its hot-selling Chrysler 300 sedan.

Foreign automakers, particularly Toyota Motor Corp. and Nissan Motor Co. Ltd., will post another strong sales month and continue to take U.S. market share from both their larger U.S. competitors and smaller Asian brands such as Mitsubishi Motors Corp., analysts said.