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post #1 of 9 (permalink) Old 07-03-2004, 04:17 PM Thread Starter
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Pressure mounts on Ford, GM after weak U.S. sales

From Automotive News:

Pressure mounts on Ford, GM after weak U.S. sales

Reuters / July 02, 2004
DETROIT -- Double-digit drops in U.S. auto sales at General Motors and Ford Motor Co. in June pressures them to raise profit-eroding incentives to "ballistic" levels and could also spur costly production cuts, analysts said on Friday.

The fall in sales by Detroit's two largest automakers pushed industrywide U.S. auto sales to a nearly six-year low and added to evidence that the economy may not have been as robust as thought in the second quarter, industry analysts said.

"With (vehicle) inventory at critical levels, aggressive incentive spending will likely be necessary to maintain planned production schedules," Goldman Sachs analyst Gary Lapidus said in a research note. The automakers "would likely implement ballistic incentives before cutting 2004 production," he said.

The traditional two-week summer shutdown of Big 3 plants in North America will help trim inventories, which are about 25 percent to 30 percent above ideal levels, analysts said.

Ford will likely have to cut production next year, Lapidus said, but other analysts said both GM and Ford may have to cut production sooner, in the third or fourth quarter.

Production cuts have an immediate impact on automakers' profits because they book them when vehicles are shipped from factories rather than sold to consumers.

The Chrysler group posted a 1 percent gain in June sales, thanks to strong sales of its new Chrysler 300 sports sedan, but it also has bloated inventories of unsold vehicles. Any increase in incentives by GM and Ford will also press the Chrysler group to match the offers.

Big 3 production cuts would hurt earnings at suppliers also, said UBS analyst Rob Hinchliffe. "The risk at this point is maybe the suppliers don't make their numbers for the full year," he said.

GM has been offering incentives averaging about $4,325 per vehicle, which includes interest-free loans for terms of up to 5 years on many of its 2004 models, according to Autodata, which tracks industry incentives.

SLOWER GROWTH

Ford has been offering substantially lower incentives than GM, an average of $3,515 according to Autodata. But Ford will have to narrow the incentive gap with GM as it ramps up production of its top-selling F-Series pickup truck, said Lloyd Hansen, Ford's vice president in charge of incentives and marketing.

"We have a lot more of them (pickups) to sell ... so we will become more competitive on incentives," Hansen said.

The sudden drop in car sales added to evidence that spending by U.S. consumers slowed in June. The two largest U.S. retailers, Wal-Mart Stores Inc. and Target Corp., warned of weaker-then-expected stores sales for June, but blamed the shortfall on cooler weather.

"We're looking for a slightly weaker second quarter than we previously had," said Bank One Senior Economist Peter Glassman. "It sort of pushed that growth that we expected toward the second half of the year."

Other automakers, including Japan's Mitsubishi Motors Corp., Volkswagen AG, and Ford's Jaguar and Land Rover brands, were also hit by the sudden downturn in June sales. Mitsubishi, which suffered a 48 percent drop in June sales and has been hit by a scandal in Japan over recalled cars there, offered a longer warranty on its vehicles sold in the United States. Mitsubishi will also offer free routine maintenance, such as oil and filter changes and tire rotation, for three years for cars and SUVs sold over the next two months.

With interest rates on the rise, analysts expect more of Mitsubishi's type of unique incentive offers as a means of backing away from interest-free loans.
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post #2 of 9 (permalink) Old 07-03-2004, 06:15 PM
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Originally Posted by moparman
From Automotive News:

Mitsubishi will also offer free routine maintenance, such as oil and filter changes and tire rotation, for three years for cars and SUVs sold over the next two months.

Plus a 5 year Bumper to Bumper warranty. Basically the best value ever offered here in terms of warranty coverage. Damn I might just have to go and get an Eclipse.
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post #3 of 9 (permalink) Old 07-05-2004, 02:57 PM Thread Starter
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Mitsu is bending over backwards. They have to right now. Still not sure if they're going to make it.
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post #4 of 9 (permalink) Old 07-06-2004, 12:33 AM
 
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I Like Incentives

The incentive war between the LeSabre and Grand Marquis means you can get either one pretty close to fully loaded for less than the base 300. $7,000 off list is pretty easy to get on either one right now.

The 300C is a different animal entirely, but I see incentives coming on the lower models to move the iron, which in turn will demystify the 300C as well.

Mitsubishi's dealer is too far away for that to be a selling point.
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post #5 of 9 (permalink) Old 07-06-2004, 12:43 AM
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Quote:
Originally Posted by frost5466
Plus a 5 year Bumper to Bumper warranty. Basically the best value ever offered here in terms of warranty coverage. Damn I might just have to go and get an Eclipse.

Will they be here in a year or two? You could have a 5 year warranty that is useless.
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post #6 of 9 (permalink) Old 07-06-2004, 01:55 AM
 
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Will they be here in a year or two? You could have a 5 year warranty that is useless.
i believe by law they still have to honor it...through a separate company though
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post #7 of 9 (permalink) Old 07-06-2004, 08:40 AM
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i believe by law they still have to honor it...through a separate company though

Not much you can do if they fold up the tent. The car division is a seperate company. If they close you are out of luck. You may get a court ruling but would not be able to collect.
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post #8 of 9 (permalink) Old 07-06-2004, 11:44 AM
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Mitsu just got a ton of financial backing from some investors, so with some regrouping I bet they'll still be here.
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post #9 of 9 (permalink) Old 07-06-2004, 04:58 PM Thread Starter
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When Daewoo shutdown awhile back the dealers here in the Maryland area were suing Daewoo as their customers were suing the dealers. Ugly.


Adaptabl makes a good point. I'm not so sure they'll be around in 3 years let alone 5.
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