Auto Sales Skid to Nearly Six-Year Low

By Michael Ellis

DETROIT (Reuters) - General Motors Corp. (GM.N: Quote, Profile, Research) and Ford Motor Co. (F.N: Quote, Profile, Research) on Thursday posted double-digit declines in their U.S. vehicle sales in June, dragging industry sales to the lowest rate in nearly six years.

The top two U.S. car makers' failure to offer sweeter incentives to consumers accustomed to large discounts, coupled with their aging vehicle lineup matched against newer models from Japanese rivals, drove Detroit's share of the U.S. market lower.

The Chrysler arm of DaimlerChrysler AG (DCX.N: Quote, Profile, Research) (DCXGn.DE: Quote, Profile, Research) posted just a 1 percent increase, on the success of its new Chrysler 300 sports sedan.

The surprising 6 percent drop in industry sales to a seasonally adjusted annual rate of 15.4 million was the weakest performance since strikes crippled industry leader GM in the summer of 1998. Analysts had expected sales to fall from the 16.5 million rate in June last year, but only slightly.

"They were miles worse than I expected," Burnham Securities analyst David Healy said, referring to industry sales.

"There's a big air pocket in GM's numbers," he added, saying an aging lineup of trucks and a lack of bigger incentives in June had hit GM's sales results hard.

GM sales dropped 15 percent, while Ford sales for its U.S. brands fell 11 percent. Their shares, as well as shares of DaimlerChrysler, closed sharply lower.

U.S. market share for the Big Three Detroit automakers fell by three percentage points to 58.5 percent from year ago levels.

Japan's three largest automakers, Nissan Motor Co. Ltd. (7201.T: Quote, Profile, Research) , Honda Motor Co. (7267.T: Quote, Profile, Research) and Toyota Motor Corp. (7203.T: Quote, Profile, Research) all posted stronger results. Honda and Toyota had their best June sales results ever, as did Nissan's Infiniti luxury brand.

The U.S. Big Three trimmed their high incentives in June from heady levels in May, when sales soared, analysts said. May's exceptionally strong sales rate also pulled forward some sales from June, they added.

"There's no question that there's some payback from the really aggressive incentive program (in May)," said Joe Phillippi, a consultant and former Wall Street automotive analyst. "As the result of ever more aggressive incentives ... sooner or later you reach some levels of saturation."

With June's weak results, GM and Ford said that inventories of unsold vehicles climbed last month, but neither cut their car and truck production estimates for the third quarter, which usually indicates that higher incentives are on the way.

Both GM and Ford have said recently that they will extend the traditional two-week summer shutdown at some of their plants by at least one week, to help reduce bloated inventories.


Even with the hike in U.S. interest rates this week, the industry will likely continue to offer interest-free loans on 2004 models, said George Pipas, Ford's chief sales analyst. However, Gary Dilts, vice president of Chrysler sales, said he expected less reliance on interest-free loans in the future.

GM and Ford officials acknowledged it would be difficult for them to recover over the remainder of the year.

"We've got a tough road ahead of us with regard to market share," GM's Ballew said.

Sales of GM's lineup of pickups, SUVs and vans dropped 15 percent. GM officials have insisted that higher gas prices have had little impact, but sales of SUVs fell by 19 percent from record levels in June last year. Meanwhile, sales of the fuel-sipping Toyota Prius, which runs partially on electric batteries, nearly tripled to 4,219 in June.

Sales rates in June are adjusted for an extra selling day vs. the same month last year.

Ford shares closed down 62 cents, or 4 percent, at $15.03 on the New York Stock Exchange. GM shares dropped $1.11, or 2.4 percent, to $45.48, while DaimlerChrysler fell $1.02 cents, or 2.2 percent, to $46.05, also on the NYSE.



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