GM raises rebates on pickups, SUVs to boost sales

DETROIT, June 4 Reuters is reporting that a day after reporting a surprising 12 percent decline in sales for May, General Motors Corp. said on Tuesday it was increasing cash rebates on pickups and sport utility vehicles to match those from Ford Motor Co.

Trucks are key to profits for Detroit's Big Three, and GM has credited strong truck sales for growing its earnings this year. But GM's full-size pickup sales slumped 23 percent in May, while sales of Ford's F-Series pickups fell 1.3 percent and sales of Chrysler's Dodge Ram pickups increased 19 percent.

GM said it was raising the rebates on mid-size SUVs by $750 to $1,750. Rebates on most four-door, full-size pickups were raised to $1,500 from $1,000, while rebates on other full-size pickups were raised from $2,000 to $2,500.

The increases bring GM's rebates in line with Ford's, although Ford offers to combine rebates with cheap interest rates on loans. The Chrysler arm of DaimlerChrysler AG is offering a rebate of $1,500 on most Ram pickups, along with larger rebates on its midsize SUVs, and an extended warranty on its engines and transmissions

GM spokesman Jeff Roegner said the automaker was raising its incentives "in response to how competitive things are out in the market today." GM had not been scheduled to revise its incentives before the end of June.

GM had said on Monday it was increasing its estimates of price cuts for the second quarter to 2 percent from about 1.5 percent, blaming the need to match other automakers' deals. It also warned that negative pricing would not improve in the second half of 2002.

Analysts warned that the automakers are eroding their own profits while training consumers only to buy on deep discounts.

"COMPETITIVE PRESSURE"

"Quite simply, the key driver there is the competitive pressure from all manufacturers in the market," said Paul Ballew, GM's director of industry analysis. "It's just an operating reality in how we all do business."

GM has led the industry on incentives since shortly after the Sept. 11 attacks, when it launched interest-free loans as a way to boost sales. Ford and Chrysler quickly followed, and all three have used a variety of incentives to prop up sales and keep factories running.

But GM executives have said continued cost cutting in manufacturing and purchasing was allowing the company to afford higher rebates while boosting profits. On Monday, the automaker raised its estimates of second-quarter and full-year profits.

Although incentives are expensive, they cost less than cutting production and closing plants would under the strict terms of North American labor contracts with Detroit's Big Three automakers.

Still, analysts said that while May's industry-wide decline of 6 percent may be a blip, they were concerned about GM's aggressive stance toward incentives and a third-quarter production schedule from Ford that suggested it would not back down from pushing sales over profits.

"The Big Three are increasing production, posturing on volume and share, and sabre rattling on price in the face of what appears to be a slowdown in consumer demand," said Goldman Sachs analyst Gary Lapidus in a research note.

"The behavior of the U.S. auto industry is destructive, in our opinion. It's training consumers to buy only on deep discount, damaging 'brand equity,' and it's eroding profit per vehicle."