Discounts seen fueling U.S. auto sales in June

Reuters |
July 2, 2007 - 3:50 pm
DETROIT (Reuters) -- Generous month-end consumer discounts fueled U.S. car and truck sales in June as cash rebates and interest-free loans offset concerns about high gasoline prices and a slowing economy, analysts said.

"Sales appear to have picked up nicely in June, following the lackluster selling rate of the past three months," Lehman Brothers analyst Brian Johnson said. "This is largely due to a sizable increase in incentives so far this month, and the generous new marketing programs."

General Motors and Ford Motor Co. last week began offering qualified buyers zero-percent financing for three years plus additional cash on select vehicles as they tried to boost sales at the end of the month.

The Chrysler group also has heavy rebates on its vehicles, including as much as $6,000 off its Dodge Ram pickup trucks.

Detroit's automakers have been struggling to hold their retail market share amid near-record-high gasoline prices, a weak housing market and fierce competition from Japanese rivals led by Toyota Motor Corp. -- which earlier this month announced its own rebates of up to $3,500 on the Tundra pickup truck and interest-free financing.

New U.S. vehicle sales are expected to come in flat to as high as 16.8 million vehicles on a seasonally adjusted annual rate basis for June, according to analysts.

That compares with last June's 16.2 million-unit rate and May's 16.16 million.

Automakers report June sales on Tuesday. There were 27 selling days in June 2007, compared with 26 during the same month in 2006.

Across the industry, vehicle sales are down 1 percent so far this year as concerns over the economy have caused consumers to hesitate in purchasing vehicles.

GM's vice president of sales, Mark LaNeve, told reporters earlier this month that the overall U.S. auto market remained "challenging" but "not awful."

Some analysts earlier had predicted a second-half recovery, but economic concerns are causing a review of those forecasts.

"Chances of a sales recovery in (the second half) now seem less likely, given high gas prices, continuing pressure on the housing market and potential future increases in interest rates," JP Morgan analyst Himanshu Patel said in a recent note to clients.

Sales of pickup trucks and sport utility vehicles have also declined in recent months as buyers have preferred more fuel-efficient passenger cars and crossovers, or car-based utility vehicles.

The trend seems to have continued in June, according to Edmunds.com.

GM sales likely fell 2 percent, reflecting good retail sales offset by a large reduction in sales to the daily rental companies, while Ford's sales were likely down 6 percent, Lehman's Johnson said.

Both GM and Ford have said they would reduce sales to daily-rental fleets by 20,000 vehicles in June.

Some analysts, including Jesse Toprak, executive director of industry analysis for Edmunds.com and analysts at JP Morgan, estimate GM sales were likely down 10 percent and 12 percent respectively.

Toyota, on the other hand, is expected to post a sales increase of up to 11 percent, while sales for Chrysler are expected to be flat to up 7 percent, according to analysts.

Ford's chief sales analyst George Pipas told Reuters that June-end incentives should help close the month on a strong note.

"Everyone is working harder and enjoying it less," Pipas said.