GM Sales Up 41%, Boosted by Steep Discounts

Big consumer incentives delivered blockbuster results for General Motors Corp. (GM) in June, with its U.S. sales jumping 41 percent over the same month last year, largely at the expense of Ford Motor Co (F).

Asian rivals Toyota Motor Corp. (search) and Nissan Motor Corp. (search) 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 sales increase at GM was driven by steep discounts that could hurt its bottom line. But it provided temporary relief for the world's largest automaker, boosting its 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. The deals lured customers away from the showrooms of Ford and others.

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 their large and fuel-thirsty vehicles slump dramatically in the face of rising U.S. gasoline prices.

"The demise of the full-size truck is a figment of the imagination of the popular press. Everybody assumes it is true but the market is still buying," GM Vice Chairman Bob Lutz (search) told reporters after addressing a business lunch in Switzerland.

June delivered more sobering results for GM's Detroit-based rivals as they struggled to compete with GM's "Employee Discount for Everyone" incentives program.

The Chrysler arm of DaimlerChrysler (DCX) said its U.S. sales rose a wafer-thin 1 percent. 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.

It was the 13th consecutive monthly decline in sales at Ford, which has cut its 2005 earnings forecast twice due to weakness in its automotive operations.

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 negotiation process so many car shoppers dread, analysts said.

But in offering all customers the same discount it offers employees, even on end-of-the-model-year inventory, 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 the escalation in incentives averaged no more than about $500 per vehicle.

He added that GM's June performance was expected to give it a 33 percent share of the U.S. light vehicle market, an impressive gain from the 25.8 percent share GM had in May.

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

Furthermore, whatever fleeting success GM has with its firesale-style 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 10 percent over June 2004 and Honda Motor Co. Ltd. (search) said its sales were up 4.7 percent.

Analysts said industrywide vehicle sales for June would likely approach a seasonally adjusted annual rate of 18 million. That would be far above the 15.4 million rate last year and 16.6 million in May and make June the strongest month for U.S. auto sales so far this year.

GM shares were up 44 cents or 1.56 percent on the New York Stock Exchange at $34.45, Ford was up 11 cents, or 1 percent at $10.34.