DETROIT – After U.S. auto sales plunged to a near-six-year low in June, automakers again are expected to beef up costly cash-back and financing offers to clear out bloated inventories, analysts say.
The industry's seasonally adjusted annual selling rate of 15.4 million units last month was the lowest since August 1998. Leading the spiral downward were General Motors Corp. (GM) and Ford Motor Co. (F), the nation's two largest automakers, both of which posted double-digit losses from a year ago.
Analysts say June's results, reported Thursday, were a payback for better-than-expected sales in May and no reason to panic — but they predict higher incentives and possibly production cuts to help move inflated inventories.
Consumers already can get $4,000 or more in cash rebates on some models.
"While the June selling rate was clearly a disappointment ... we're still comfortable with our 16.7 million-unit forecast for the year," Chris Ceraso, who monitors the industry for Credit Suisse First Boston (search), said in a research report.
"In addition to incentives heading higher in July and August, we would also look for the selling rate to rebound strongly," Ceraso said.
Deutsche Bank's Rod Lache said even though June sales "may have been an aberration, we were struck by the magnitude of the market share losses by GM and Ford and the relative strength for DaimlerChrysler (DCX).
"The weak trends at GM and Ford reinforce the need for investors to assess the financial outlook for these companies," Lache said in a report.
Collectively, Detroit's Big Three automakers saw their market share fall to 59 percent in June, down from 60.6 percent for the first six months of 2003, according to Autodata Corp. Chrysler, helped by the introduction of several new vehicles, has eked out a small gain in U.S. market share so far this year, while GM and Ford are both lagging year-ago figures.
GM and Ford are hopeful new vehicle launches scheduled in the second half of the year will spur business. Ford's offerings will include the new Five-Hundred sedan and redesigned Mustang. GM will add the Chevy Cobalt (search), a replacement for the high-volume Cavalier, and the Pontiac G6 (search), which replaces the Grand Am.
Meanwhile, Asian automakers have increased their share of the U.S. market from 32.4 percent last June to 34.3 percent through the end of last month, according to Autodata.
Neither GM nor Ford has announced revisions to their third-quarter production schedules, but analysts say they may be forced to do so if an expected flurry of incentives doesn't lift sales.
A production cut is significant because automakers consider a vehicle sold when it's shipped from the manufacturing plant to a dealer, not when the dealer reaches an agreement with a buyer. As such, diminishing production can reduce the automaker's bottom line.
Ceraso said Big Three dealer stock levels grew by nearly 100,000 units in June to about 2.9 million units, which he estimates is roughly 400,000 above normal for this time of the year.
The Big Three's traditional two-week summer shutdown, which begins this week, should help lower the levels.