Automakers may offer good deals for surplus
By Earle Eldridge
USA Today
U.S. automakers are producing more cars even as weakening demand has them boosting incentives to sell ones they've already built.
The result could be a glut of cars, meaning good deals for consumers but lower profits for automakers.
"A price war is breaking out in the U.S. auto industry," says Goldman Sachs analyst Gary Lapidus. "It's pedal to the metal at Ford plants, with new management ready to spend whatever it takes to maintain share and volume. (General Motors) is digging in the trenches, adding shift capacity and warning of higher incentive spending. All of this is in the face of an apparent softening in demand."
Sales were off 6 percent in May from a year ago and were off 2.7 percent through the first five months of the year.
Lapidus warns that automakers may end up spending more on rebate deals in late summer to clear out too many cars being built now. In fact, as soon as May sales numbers were out, GM, which has led the charge on rebates, added more.
The automakers think May's big drop was a blip and have been gearing up plants on a forecast of increased demand. Through June 7, U.S. vehicle output was up 7.7 percent from a year ago, according to Ward's Automotive Reports.
• GM's second-quarter production is up 12 percent from a year ago. The company says third quarter will increase 0.6 percent.
• Ford's second-quarter production is up 4 percent, and the company expects the third quarter to be up 16 percent.
• DaimlerChrysler's Chrysler Group does not release production forecasts but said production through May this year is up 3.2 percent and 14 of its 17 plants are on overtime.
The automakers defend their production schedules, saying the days supply of vehicles is around the industry standard of 60. Days supply is the number of days it would take to sell the vehicles on dealer lots at the current sales pace and if no more vehicles were delivered to dealers.
"We aren't increasing production across the board," says GM spokesman Dan Flores. "We are increasing production where it is needed, like full-size pickups and the Cadillac CTS. And we still think the market is strong."
Ford says its production looks high compared with last year when plants shut down for a while as the company dealt with the Firestone tire recall and replacement.
But Lapidus says that if June and July sales are like May's, automakers will be scrambling to cut production. And they'll have themselves to blame.
"They don't let a little thing like demand get in the way of their sales plans," he jokes, adding, "What they are doing is setting themselves up to write bigger cash rebate checks later this year."
