Carmakers Trying to Avoid Incentives

January 7, 2008
2009 Chevrolet Silverado Hybrid

2009 Chevrolet Silverado Hybrid

Faced with talk of recession and the fallout from a meltdown in the housing market, automakers are still hoping to avoid major incentives despite some sluggish sales.

Mark LaNeve, General Motors’ vice president in charge of vehicle sales, said last week there was no doubt sales will be slow through the first quarter of 2008. Toyota also scaled back its forecast for higher sales in 2008 in the face of the deteriorating economic conditions in the U.S. At best, Toyota now expects its sales to improve only between one and two percent, Toyota officials said.

George Pipas, Ford’s sales analyst, said Ford economists don't expect the economic environment to improve much in the next several months. Conditions will remain challenging in 2008, with light-vehicle sales running at the relatively anemic annual rate of 15.2 to 15.7 million units, Pipas said.

Chrysler vice chairman Jim Press also was careful to note that 2008 is still expected to be a difficult year. The company hopes to gain some retail market share but still plans to reduce the number of vehicles it builds for rental fleets. The housing crunch is continuing to pinch the economy, he said.

Bob Carter, Toyota Motor Sales vice president, however, emphasized Toyota was going to stick to its marketing plans and wasn't planning to add incentives — a sentiment echoed by other Asian automakers.

LaNeve also said GM also would not raise incentives to counter the gloomy economic news.

Domestic carmakers have slimmed down inventories of unsold new vehicles as they enter the new year. The cuts were ordered last November just as subprime crisis gained new life. GM's inventories, for example, are in relatively good shape, following the decision to trim production in the first quarter of 2008 by 11 percent, LaNeve said.

"We won't have to deal with any inventory clearance," he said during a  conference call with reporters and analysts. "With this kind of sales numbers, we'd actually be looking to build some inventory for the spring market."

Both Chrysler and Ford also reported entering 2008 with substantially reduced inventories and report that they are holding back on incentives after reducing production in the third and fourth quarter.

Chrysler Vice President Steven Landry said the company's inventories are down 19 percent from year-ago levels and added that vehicles being delivered to dealers now are based on specific orders. "Our inventories are at the lowest levels since 1994," Landry said.

The drop in inventories also represents a turnabout from last year, when dealers were asked to order more vehicles than they could handle, Landry said.

Pipas said Ford's inventories were down ten percent at the end of December and have dropped by nearly 250,000 units since the end of 2005.

Jim Farley, Ford group vice president of marketing and communications, said the sharp decline in inventories also has helped make Ford's dealers more profitable and will help in keeping incentives in check even if competitors decide they are needed.

Press also said the lower inventories would be augmented at Chrysler by new models in the next couple of months.

"We have a ton of new products coming in '08," Press said, adding that the new Dodge Challenger is already sold out. "We're not just pipe dreaming. We've got a great product parade coming.

"By the end of February, we're going to be launching several new models. We're substantially improving the level of appeal and quality," Press said.

Going forward, Michael DiGiovanni, GM's new director of global market analysis and former head of the HUMMER division, said the decline in house prices is a necessary precursor for recovery. The sharp declines are setting the stage for a broader economic recovery later this year and in early 2009, DiGiovanni said.

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