August 2, 2005

July sales surge for Detroit automakers

By Tom Brown

DETROIT (Reuters) - General Motors, Ford and Chrysler
posted stronger-than-expected double-digit U.S. sales gains for
July on Tuesday as hefty discounts drove a near-record number
of buyers into Big Three showrooms.

The 35.5 percent year-over-year gain that Ford Motor Co.
posted was the first after 13 consecutive months of
declines, as the No. 2 automaker 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.

Asian automakers also posted double-digit increases but the
gains were generally more modest than those of their
Detroit-based competitors.

DaimlerChrysler's Chrysler division,
which said its U.S. sales jumped 32 percent in July, has also
matched GM's employee discount program.

The wildly successful program gave GM a hefty 41 percent
increase in its U.S. sales in June but that slowed to a 19.1
percent gain for the world's largest automaker in July.

All sales figures are adjusted for one less selling day in
July this year and exclude Ford and GM's foreign brands and
some heavy-duty trucks.

Vehicles sales across the industry strengthened nearly 21
percent to a seasonally adjusted annual rate of 20.9 million
vehicles in July. That was the highest level since a record
21.7 million set in October 2001 and far above the 17.2 million
rate in July last year.

"It's a huge number of people that went shopping for cars
in the month of July," said Gary Dilts, Chrysler's senior vice
president for sales.

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


Burnham Securities analyst David Healy, who calls employee
discounts "a marketing masterpiece," said they had also allowed
Detroit's automakers to quietly reduce other consumer

"Net pricing is hardly changed at all," Healy told Reuters.

He noted that profit margins were negative for GM and Ford,
however. "They're losing money hand over fist in North America
but the employee discount situation doesn't really change
that," Healy said.

Another big plus, in what Dilts described as a "nuclear
level of incentives," is that they have allowed the domestic
automakers to pump up sales of 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 prices.

"We will never make enough money but, for sure, this was
cost effective for us during the month of July," Dilts said.

Ford said it sold 126,905 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. GM, meanwhile,
said sales of its full-sized pickups were up nearly 55 percent,
while sales of its SUVs rose to an all-time high.

Ford's chief sales analyst, George Pipas, indicated on a
conference call that the F-Series lineup generated at least
$3.6 billion in revenue in July.

Among Japan's Big Three, Toyota said its July U.S. sales
rose 12.3 percent. Honda Motor Co. Ltd. saw its sales
rise 14.5 percent and Nissan Motor Co. Ltd. said its
sales were up 19.4 percent. Like Toyota and Nissan, South
Korea's Hyundai Motor Co. Ltd. , which had a 15
percent gain in its sales, said July was its best U.S. sales
month ever.

The success of big consumer incentives from Detroit's
automakers benefited everyone since "the rising tide of
bargains lifted the market industry-wide," according to Jim
Press, the president and chief operating officer of Toyota's
U.S. operations.

He and others suggested that same success could come back
to haunt Detroit later on, however, as "the coming months will
test the industry's seaworthiness."

There is a growing fear in the Motor City about
"pull-ahead" or "payback" effect. The terms refer to how
exceptionally strong sales in any one month can weigh on
near-term demand for mass market brands such as Chevrolet,
Dodge and Ford.

"The question is what happens when the employee discount
sales are over," said Healy. "I think you've got a big payback
coming because the boom in sales in June and July was at the
expense of sales in coming up in late August and September and

GM shares closed down 33 cents at $36.53 in Tuesday's
trading on the New York Stock Exchange. Ford shares closed up 3
cents at $10.88, meanwhile, and DaimlerChrysler shares ended
the session up $1.37 at $50.74.

(With Poornima Gupta in Detroit)