August 2, 2005

Discounts boost Ford and Chrysler’s sales

By Tom Brown

DETROIT (Reuters) - Ford Motor Co. and
DaimlerChrysler's Chrysler division posted
double-digit U.S. sales gains for July on Tuesday, as popular
employee pricing discounts delivered blowout results for the
Detroit automakers.

The 35.5 percent year-over-year gain that Ford posted on
Tuesday was the first by the second-largest U.S. automaker
after 13 consecutive months of declines as it hemorrhaged
market share to fast-growing Asian rivals led by Toyota Motor
Corp. .

The results came after Ford, which is struggling to return
its core North American automotive operations to profitability,
followed the lead of General Motors Corp. by offering
consumers new vehicles at the same low price employees pay.

Chrysler, which said its U.S. sales jumped 32 percent in
July, has also matched the program, which gave GM a hefty 41
percent increase in its U.S. sales in June.

All sales figures are adjusted for one less selling day in
July this year and exclude Ford's foreign brands. GM's July
results were due out later on Tuesday.

The employee discount programs -- a virtual
going-out-of-business sale -- are squeezing the automakers'
profit margins. But they have allowed them to trim inventories
of unsold vehicles from the outgoing 2005 model year, while
also boosting their market share.

The deals have also allowed domestic automakers to pump up
sales of their fuel-thirsty pickup trucks and sport utility
vehicles. The highly profitable models have been hurt by
sagging demand this year in the face of rising U.S. gasoline

Ford said it sold 126,905 of F-Series pickups in July, up
58 percent from a year ago and more than any other vehicle in a
single month since the Model T of the 1920s.

Among Japanese automakers, Nissan Motor Co. Ltd.
said its July U.S. sales were up 19.4 percent.

Overall, analysts are forecasting that industry sales in
July jumped to a seasonally adjusted annual rate in the range
of 18.6 million to 19 million vehicles, the highest level since
October 2001 and well above the 17.2 million rate in July last

But the success of big consumer incentives from Detroit's
automakers, which cut vehicle prices by thousands of dollars,
could come back to haunt the companies later on.


There is a growing fear in the Motor City about the
so-called "pull-ahead" or "payback" effect. Exceptionally
strong sales in any one month can weigh on near-term demand for
mass market brands such as Chevrolet, Dodge and Ford. July's
torrid pace is unlikely to be sustainable, analysts say.

"The inevitable hangover is on the way," analyst David
Healy of Burnham Securities said in a recent research note.

In the same note, Healy commented on one of the fundamental
problems facing Detroit automakers, which seem unable to sell
anything these days without huge rebates and other incentives.

"Although Detroit has for all practical purposes closed the
U.S./Asian quality gap, the perception that American companies
still produce garbage, as they actually did during much of the
1970s and 1980s, is proving most difficult to eradicate," Healy

"The poor quality of many of these old models has bred a
new generation of car buyers who would never consider entering
a domestic brand showroom," he said.

(With Poornima Gupta in Detroit)