Friday, July 07, 2006

Big 3 sales plunge on rebate backlash

Tuesday, July 04, 2006
June auto sales
Big 3 sales plunge on rebate backlash
Gas prices also slam demand for autos
Josee Valcourt / The Detroit News

Domestic vehicle sales plunged in June from year-earlier levels as U.S. automakers suffered a backlash from last summer's employee-discounts-for-all bonanza.

High gas prices and rising interest rates also dampened consumer demand. All of Detroit's automakers reported double-digit declines in sales of light trucks, their main profit drivers in North America.

With inventories piling up, analysts predict a price war will break out again this summer despite efforts by Detroit's Big Three to kick the incentives habit.

"There's going to be pressure for them to keep incentives high," said Jesse Toprak, an analyst at, a car buyers' Web site.

Sales of General Motors Corp. vehicles tumbled 25.7 percent in a market that fell 10.5 percent overall, according to Autodata Corp.

"I don't think anybody expected sales to be anything except down," said Rebecca Lindland, auto analyst at forecasting firm Global Insight Inc. in Waltham, Mass.

Ford Motor Co. sales fell 7 percent, while DaimlerChrysler AG's Chrysler Group reported a 15.5 percent drop.

Among Japanese automakers, Nissan Motor Co. sales plunged 19 percent in June, and Honda Motor Co.'s were flat.

But Toyota Motor Corp. reported a 14.4 percent gain, boosting its market share to 14.9 percent -- ahead of DaimlerChrysler AG for the third month in a row.

Although GM posted the biggest slide of any major automaker, company executives said the results were better than what they had anticipated. In June 2005, GM launched an employee-pricing-for-everyone program that led to a surge in its monthly sales.

Ford and Chrysler followed suit the next month.

Chrysler recently reintroduced employee pricing for all, while GM and Ford also are offering big discount programs.

"We'll stay competitive in the marketplace," said Paul Ballew, director of GM sales analysis.

But, he added, "We believe incentives have lost some of their bite in the marketplace."

Ford officials agreed.

George Pipas, Ford's market analyst, said the automaker's "Drive on Us" program, which was launched last month and included free gas for a year, did not boost June sales as much as expected.

"From that standpoint," he said, "one can make an assessment as to whether the program was successful."

Domestics bore the brunt of a 19.4 percent plunge in light truck sales industrywide last month as consumers turned to more fuel-efficient cars.

Detroit makers' share of the U.S. market declined to 56.1 percent, from 61.6 percent a year ago. Asian brands gained nearly five points of market share.

The persistent slide has led GM and Ford to announce drastic downsizings for their North American operations and threatens to derail Chrysler's recovery.

Sales of large and midsize SUVs continue to slide, and U.S consumers are now shunning -- or at least postponing -- purchases of large pickups.

"This is a segment which has held up quite well until recently," Pipas said.

Sales of Ford's F-Series trucks were down 10 percent in June. So far this year, F-Series truck sales are down nearly 2 percent, and Pipas said the company would struggle to meet an annual sales target of around 900,000.

The competition in the segment will heat up later this year when GM and Toyota both introduce new full-size pickups.

Ford reported a 9 percent rise in car sales, but faces a difficult second half, said Toprak of

"Ford appears to be in the most vulnerable situation," he said. "They don't have a big hit expected in the marketplace."

Chrysler reported a 32.1 percent plunge in car sales but will be launching several new cars in the second half of the year.

Steve Landry, vice president of sales at the Chrysler Group, said the decline reflected Chrysler's effort to scale back sales to rental car fleets that are normally less profitable than retail sales.

GM, which reported flat car sales, said it had also scaled back its fleet business last month.

In addition, its new full-size SUVs are struggling in a harsh environment. Large SUV sales were down 29 percent in June and are down 17 percent for the first half of the year.

"I would describe the first six months as being just a little bit below our expectations," Ballew said. "Given the headwinds we've had, it's not surprising we're coming in a little bit below where we expected to be."

Detroit News Staff Writer Christine Tierney contributed to this report. You can reach Josee Valcourt at (313) 222-2300 or

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