Detroit Boosts Incentives to Lure Buyers

DETROIT, July 2 Reuters is reporting that Detroit automakers boosted incentives to lure more buyers into showrooms on Tuesday, escalating a punishing industry price war even as they reported a rebound in U.S. auto sales in June from a surprising slump in May.

General Motors Corp., the world's largest automaker, took the lead in the fight for market share by announcing that it was reviving the offer of interest-free financing that it used to bolster consumer confidence and buying after the Sept. 11 attacks.

"We intend to be on the offensive as we head into the second half of this year. Quite simply we are going to grow this business," Paul Ballew, GM's chief of industry sales analysis, said in a conference call.

"We have the ability and the desire to be on the offensive in the market and to show leadership," he added, referring to GM's dominance in industry pricing.

The Chrysler arm of DaimlerChrysler quickly announced that it too was resuming interest-free financing, which it reluctantly matched after GM's move last fall.

FORD LOOKING AT GM MOVES

And Ford Motor Co., which had earlier introduced new incentive offers that appeared somewhat less generous than GM's, said it was evaluating changes to its program.

"It's important for us to be very aware of what the competitive landscape is," said George Pipas, Ford's chief sales analyst.

GM eliminated the free financing deals in late April when industry sales were running stronger than expected, replacing them with increased cash rebates on a number of vehicles.

The return of the deals, amid growing uncertainty about the fledgling U.S. economic recovery, follows a drop in May U.S. auto sales to their lowest rate in nearly four years. Another weak month would have raised warning signals about the economy and the fate of an industry that accounts for roughly 20 percent of U.S. retail sales.

But with all major automakers reporting June results as of late Tuesday afternoon, June sales came in a seasonally adjusted annual rate of 16.5 million vehicles, with volume down just 1.7 percent from a year earlier.

That was below April's rate of 17.4 million, but well ahead of May's 15.7 million rate and strong enough to indicate that American consumers will be willing to spend during the key summer selling season, despite the recent downhill race in the stock market.

"Recent economic data is consistent with our view that a moderate recovery is underway," said Jarlath Costello, Ford's senior U.S. economist.

"Certainly household wealth has been hit by the decline in stock prices. But higher house values have helped offset some of these losses. Moreover, low mortgage rates are encouraging a refinancing boom," he said.

GM GAINS, FORD AND CHRYSLER FALL

June sales included a mixed bag of results overall, with GM alone among the Big Three in reporting a sales gain, with results up 4.4 percent.

Ford's 11.3 percent drop in sales, excluding its foreign brands, was in line with expectations given what many analysts have described as its dearth of exciting new products, however. And Chrysler's moderate 4 percent decline in sales topped expectations.

There were few surprises among the results of foreign automakers, with South Korean companies reporting sales increases while the Japanese and many European carmakers had results that were flat to somewhat lower.

The focus in Detroit was squarely on incentives, however, which have led financial analysts to voice growing fears about the underlying health of the U.S. auto industry.

Spokesmen for the Big Three have argued that the incentives, which had been averaging more than $2,200 per vehicle, are less expensive than the cost of idling assembly plants and laying off workers under the generous terms of their North American labor contracts. But concern about the costs of cheap loans and other deals to prop up demand is spiraling nonetheless.

"We believe the implications are clearly negative," Rod Lache, an analyst with Deutsche Bank Securities Inc., said in a research note.

"We believe any escalation by GM or Ford is likely to spur retaliation," he said. "The concept of mutually assured destruction (MAD) comes to mind."

"This is an intensely competitive environment," Ford's Pipas told reporters, when asked if Ford's incentives spending wasn't likely to anger its shareholders.

"If we don't deliver to customers what they want you won't have to worry about shareholders. It's as simple as that. Customers come first."