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July sales surge for Detroit automakers

Posted on: Tuesday, 2 August 2005, 16:48 CDT

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. <7203.T>.

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.

"MARKETING MASTERPIECE"

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 incentives.

"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. <7267.T> saw its sales rise 14.5 percent and Nissan Motor Co. Ltd. <7201.T> said its sales were up 19.4 percent. Like Toyota and Nissan, South Korea's Hyundai Motor Co. Ltd. <005380.KS>, 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 October."

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)

Source: REUTERS

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