Big Three Incentives Fell in September 2004

DETROIT October 5, 2004; John Porretto writing for the AP reported that despite last-minute clearance sales at the nation's two largest automakers, Detroit's Big Three carmakers spent less on consumer incentives in September than in August, a result one analyst called a "well-executed play."

No. 1 General Motors Corp. led the industry with an average outlay of $4,340 a vehicle last month, down $39 from August, according to Autodata Corp. Nevertheless, GM saw its new vehicle business climb a surprising 20.5 percent and helped the industry post a 6 percent rise in sales for September after a sub-par August.

No. 2 Ford Motor Co. spent an average of $3,808 a vehicle in September, down $146 from August. Its sales fell 7 percent.

At DaimlerChrysler AG's Chrysler Group, incentive spending declined by $237 a vehicle from August to September for an average outlay of $3,628. Helped by a beefed-up portfolio, Chrysler said sales rose 10 percent in September from a year ago.

GM and Ford both offered no-interest, six-year loans on most remaining 2004 models last week, but the fine print excluded adding bonus cash or other rebates on to the loan deals, limiting the costs of the programs, Credit Suisse First Boston analyst Chris Ceraso said in a research note Tuesday.

For example, GM and Ford both had been offering $1,000 to $1,500 in bonus cash for customers who financed their purchases through the automakers' financing arms. That cash wasn't available on the "0-for-72" deals, Ceraso said.

But the promotions certainly created traffic for dealers, analysts and others said.

"The sequential decline in incentive outlays reflects what turns out to be a very well executed play by the Big Three," Ceraso said.

As usual, incentive spending by GM, Ford and Chrysler far exceeded that of Asian and European brands.

Outlays by Asian manufacturers were down 4.2 percent to an average of $1,449 a vehicle in September, while European brands' incentives were down 6.8 percent to $2,561.

Merrill Lynch analyst John Casesa said Toyota was particularly impressive in September, posting a 10.3 percent year-over-year sales increase while its average incentive for the same period declined 23.9 percent.

"This is likely a function of the company's extremely efficient supply-demand management, a discipline many other market participants are lacking," Casesa said in a research note.

Casesa said GM did a better job than Ford last month of reducing inflated vehicle inventories. But both automakers have said they plan to build fewer vehicles in the fourth quarter of 2004 versus a year ago to further reduce supplies.

Those reductions are having an effect on the projected earnings of many automotive suppliers.

The latest to warn of the effects was Novi-based Tower Automotive Inc., which said Tuesday it now expects a third-quarter loss of $22.5 million to $25 million, or 39 cents to 43 cents a share. That compares to a previous forecast of a loss of $10.4 million to $12.8 million, or 18 cents to 22 cents a share.

Tower cited lower vehicle production in North America, rising steel prices and higher launch costs on new business.

In afternoon trading on the New York Stock Exchange, GM shares were down 45 cents to $42.03, Ford shares were off a penny to $14.14 and Chrysler parent DaimlerChrysler AG's U.S. shares were up 3 cents to $42.59. Tower shares were off 28 cents, or 13 percent, to $1.86.

General Motors Corp.: http://www.gm.com

Ford Motor Co.: http://www.ford.com

Chrysler: http://www.chrysler.com

Tower Automotive Inc.: http://www.towerautomotive.com