Published January 14, 2015
General Motors Corp. (GM) and Ford Motor Co. (F) escalated their incentive battle on Wednesday after both U.S. automakers suffered a double-digit drop in June vehicle sales and lost market share to Asian competitors.
GM, the world's largest automaker, raised cash rebates it offers on most of its sport utility vehicles to $5,000, and to $4,000 for most cars for the 2004 model year, the automaker said on Wednesday.
"That's a major step up in the incentives," said Frank Ursomarso Sr., owner of Union Park Pontiac-GMC car dealership in Wilmington, Del. "That's going to put considerable pressure on the other manufacturers."
Ford Motor Co. raised its incentives by $1,000 to a total of $4,000 on some of its SUVs, including the four-door Ford Explorer (search). Ford also raised discounts on its poor-selling Freestar minivan and its small car, the Focus.
June's poor sales left GM and Ford with high inventories, estimated at around 30 percent above normal levels, leading analysts to conclude that higher incentives were on the way.
"Given ongoing high Big Three inventory levels, particularly at GM and Ford, and June's sluggish sales pace, our best guess would be for a sequential uptick in July incentive spending," J.P. Morgan analyst Himanshu Patel said in a research note.
High incentives have helped boost sales in months past, but also cut profit margins and hurt earnings, analysts said.
GM's sales plunged in June after it cut its incentives by an average of about $234 per model, according to Autodata. But GM and Ford also suffering from an aging lineup of vehicles, poorer quality versus major Asian automakers and increased competition in many segments of the market.
GM and Ford also continue to offer interest-free financing, despite the recent uptick in U.S. interest rates.
After almost two years of trying to reduce its discount spending on key models below arch rival GM, Ford appears to be increasing its spending on consumer incentives. For the first time this year in June, it overtook Chrysler in offering discounts, according to Autodata (search). Ford's incentives rose to an average of $3,679 per vehicle in June, up from $3,515 in May.
"On some vehicles like Explorer where many, many new competitors are fighting for market share, we want to be aggressive," Ford spokesman Jim Cain said.