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The Honolulu Advertiser
Posted on: Saturday, November 26, 2005

Looks like another dismal month for GM

By Dee-Ann Durbin
Associated Press

At the Hayward Chevrolet dealership in California, red tags to be posted on autos show discounted prices for GM vehicles. Under GM's program, dealers will post fixed maximum prices on the vehicles.

BEN MARGOT | Associated Press

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DETROIT — Despite a new round of discount offers, November will likely be another disappointing month for sales and profitability at General Motors Corp., intensifying pressure on the world's largest carmaker to speed up or expand the job cuts and plant closings it announced this week.

GM, Ford Motor Co. and DaimlerChrysler AG's Chrysler Group launched new price breaks in mid-November to lure customers to dealerships. The strategy worked, but not enough to counter other factors like jittery consumers and the hangover effect from a summer of near-record sales, industry analysts say.

"It seems that November got off to an excruciatingly slow start, with new incentives programs from Ford and GM just now beginning to boost showroom traffic," Merrill Lynch analyst John Casesa said this week in a note to investors.

Sales in the U.S. market — the largest in the world — can make or break automakers. Profits at GM, in particular, have been dragged down in recent months by faltering sales in North America, where it lost nearly $5 billion in the first nine months of this year.

And while discounts increase sales and help cover fixed costs, they typically don't translate into higher profits.

Casesa said GM will likely see its eighth month of year-over-year sales declines this year. Those declines paused only over the summer, when GM allowed consumers to pay the employee price for their vehicles.

Ford also will likely see double-digit declines as sport utility vehicles continue to falter, Casesa said. Chrysler has been buoyed in the past by hot models including the Chrysler 300 sedan and a big increase in fleet sales, but it probably will be dragged down in November, Casesa said.

Automakers are scheduled to report their November results on Thursday.

The November results are another bitter pill for GM, which announced on Monday a plan to cut 30,000 jobs and close 12 facilities around the country to get its production in line with falling U.S. demand. GM's U.S. market share fell to 26.2 percent in the first 10 months of this year compared with 33 percent a decade ago, the result of increasing competition from Asian rivals.

The return to incentives in November was particularly frustrating for U.S. automakers, who vowed to cut back on the costly promotions after the employee-discount blitz but reversed course after a dismal October, when GM and Ford each saw their sales drop 23 percent. Sales for Chrysler and Asian brands were flat last month compared to the year before.

GM, Ford and Chrysler had little choice but to turn to incentives this month, since automakers typically offer price breaks during the holiday season. Nissan Motor Co. plans to release details of its new incentive program on Thursday, a spokeswoman said, while Toyota already is offering discounts. Neither automaker would release further details about their incentives.

GM Chairman and CEO Rick Wagoner said GM's current incentive, posting a red tag on each vehicle showing a maximum price that consumers should pay, is in line with its strategy of more transparent pricing. Wagoner said the employee discounts taught GM that customers don't like having to wade through incentives to figure out prices.

But in a teleconference with Wall Street analysts last week, Wagoner admitted the company would prefer to stop relying so heavily on discounts.

"We're winding along the road, but it's not as straight as we might like," he said.