Detroit, Nov. 1: Carmakers are expecting a sharp falloff when they report October sales, and some analysts fear that a second consecutive month of slumping results could indicate an end to boom times for auto sales.
Many analysts have been cutting back their expectations for October throughout the month, and J.D. Power & Associates is forecasting sales at the lowest monthly rate in four years.
To compensate for diminishing demand, General Motors and Ford have gone to new lengths in their price war. GM, which will announce a new incentive plan on Friday, has not only been offering buyers interest-free loans but is also allowing some customers to defer payments for 90 days. Ford has been extending the duration of its longest loan, traditionally five years, to six years on a few vehicles.
Such deals have helped GM gain a small amount of market share this year while Ford’s share has fallen considerably. The profits of both companies have been relatively slight.
“The Big Three are throwing more and more at the market and getting less and less impact,” said Stephen J. Girsky, an auto industry analyst at Morgan Stanley.
Economists are monitoring the car industry's health closely because buoyant consumer spending has kept the economy growing this year and strong auto sales have been a crucial factor. Most analysts expect a drop in year-over-year sales of 20 per cent to 30 per cent but are more concerned with the pattern of falling sales over the last couple of months.
Sales have been propelled by Detroit's free financing and other lavish incentives put in place after the September 11 attacks. In October 2001, when GM spurred a price war with its Keep America Rolling interest-free financing deals, auto sales jumped to their highest monthly rate ever.
A year later, there is concern from Wall Street and some industry executives that consumers now think of the high level of incentives as the status quo.
That could put continued pressure on the Big Three's profitability without bolstering their sales.
Manfred Gentz, the chief financial officer at DaimlerChrysler, parent of the Chrysler Group, said in a conference call last week that the price war was “destroying the structure of our earnings.”
“It is deteriorating our bottom line, and it isn’t sustainable,” he said.