Saturday, July 2, 2005

Douglas C. Pizac / Associated Press An "employee discount" banner is displayed to attract customers at the Riverton Chevrolet dealership in Sandy, Utah.

Discounts pump up GM's U.S. sales

Sales jump 41 percent over last June; Asians also show healthy gains; Ford and Chrysler lag

By Tom Brown / Reuters

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DETROIT -- Big consumer incentives delivered blockbuster results for General Motors Corp. in June, with its U.S. sales jumping 41 percent over the same month last year, largely at the expense of Detroit-based rivals.

Ford Motor Co. lost the most market share, as it posted its 13th consecutive month of lower U.S. vehicle sales. Like GM, the No. 2 U.S. automaker is struggling to stop bleeding money in its core operations.

Japan's Toyota Motor Corp. and Nissan Motor Co.p. also posted double-digit gains, and Toyota said its first-half sales were the best-ever in 48 years of doing business in the United States.

The stronger-than-expected increase at GM was driven by steep discounts that could hurt its bottom line. But it gave temporary relief to the world's largest automaker, boosting GM's market share and offsetting sales declines that contributed to a $1.1 billion first-quarter loss.

It was the company's strongest sales month since September 1986, and GM said it set an all-time industry record for light truck sales, which were up 68 percent.

Shares in GM rose 2 percent, helping to lift blue-chip stocks in the day.

The company's deals lured customers away from the showrooms of Ford and others, including the Chrysler unit of Germany's DaimlerChrysler, analysts said.

"GM took sales from everybody with this program of theirs but I think they took most of it from Ford and Chrysler," said David Healy of Burnham Securities.

"GM stole the month with the program," he added, referring to GM's "Employee Discount for Everyone" incentives strategy.

The increase in GM's sales of light trucks, a category that includes SUVs, pickups and minivans, bucked a worrisome trend for U.S. automakers, which have recently seen sales of large, fuel-thirsty vehicles slump dramatically in the face of rising U.S. gasoline prices.

June delivered more sobering results for other automakers as they struggled to compete with GM's incentives.

Chrysler, which said on Friday that it would launch a discount program similar to GM's next week, posted a wafer-thin 1 percent rise in June sales. And Ford's sales of new cars and trucks fell 2.5 percent. The result was adjusted for one more selling day in June this year and excludes Ford's foreign brands.

Ford's chief sales analyst George Pipas said the company had its best sales results so far this year. But he said everyone had been hurt by GM's success.

"We stand in the shadow of GM, okay? But, hey, guess what, so does everybody else," Pipas said.

Vehicle sales across the industry strengthened 11 percent to a seasonally adjusted annual rate of 17.5 million in June. That was far above the 15.4 million rate in June last year and 16.6 million in May.

GM's marketing strategy, under which it now sells anybody a new car or truck at the same price a GM employee would pay, resonated with consumers because it eliminated the price negotiations so many car shoppers dread, analysts said.

Squeezing GM Margins

But in offering all customers the same discount as employees, GM may also be sacrificing profit by squeezing its margins, a concern that has rung alarm bells on Wall Street.

"We believe this is likely the most expensive marketing program ever run by GM," Rod Lache, who tracks the auto industry for Deutsche Bank, said in a research note.

He said the high cost of GM's employee discount represented a $900 escalation in cost per vehicle in incentives over May.

Paul Ballew, GM's head of global market and industry analysis, told reporters and analysts on a conference call that GM's incentives were flat or up just slightly month-over-month, however.

GM's June performance gave it a near 33 percent share of the U.S. light vehicle market, an impressive gain from a 25.8 percent share in May.

But Lache cautioned that deep discounts would also weigh on the automaker's second-quarter earnings and cash flow.

Furthermore, whatever fleeting success GM has with its firesale marketing, analysts predict more long-term share erosion for it and other Detroit automakers. GM and Ford both face hyper-competition from Asian rivals with new vehicle offerings and attractive models across the entire market.

Nissan said its U.S. sales were up 14 percent in June. The result was driven by demand for Nissan's Altima mid-size sedan and its new Pathfinder SUV, Jed Connelly, the company's North American sales chief, told Reuters.

Toyota, meanwhile, said its U.S. sales rose 10 percent over June 2004 and Honda Motor Co. Ltd. said its sales were up 4.7 percent.

GM shares closed up 65 cents on the New York Stock Exchange at $34.65, while Ford closed up 7 cents at $10.31.