Auto Sales on a Roll in June

Auto sales in the U.S. turned in another strong performance in June, declining just 1.7% from last year’s robust level, auto makers reported Tuesday. And Ford Motor Co. and General Motors Corp. announced a new round of sales incentives, which are likely to keep sales strong into the summer.

The auto sales numbers bode well for the economy, since vehicle sales, a closely watched economic barometer, are a key component of consumer spending.

“I believe a moderate recovery is coming our way,” said Jarleth Costello, GM’s senior U.S. economist. “Consumer confidence is well above last fall’s levels. The labor market is stabilizing with unemployment claims settling down. Household income increased, and low mortgage rates are encouraging a refinancing boom.”

General Motors managed to increase sales 4.3% last month, while Ford Motor continued its slide with sales shrinking 10.6% compared with last June.

For the first half of the year, the U.S. auto market was down a moderate 2.6% from last year’s near-record pace, according to tracking firm Autodata Inc. GM was down 2.2% but the Chrysler Group of DaimlerChrysler declined 4% and Ford was off considerably, down 10.7%.

Ford and GM renewed their incentive war Tuesday to boost their sales in a market where the growth is going mainly to Japanese and German imports.

GM said it is reviving its no-interest financing, offering 0% to 2.9% loans of up to five years on 2002 model-year vehicles, or up to $4,000 cash back. Ford announced it is offering $1,500 to $3,000 rebates and low-interest loans on 2002 models.

Ford rejected the idea that the program, dubbed “We Will Rock You,” was a panic move in response to its 14.5% drop in sales in May and 10.6% decline in June.

“I would characterize this program as normal,” Ford director of sales analysis George Pipas said. “We certainly are not in a position of having to panic. Consumers do expect programs on ’02 cars, and we want to do programs that connect with the end-of-model-year buyer.”

GM also had planned its incentive program, which it is calling “Summerdrive,” as a routine seasonal promotion, said Paul Ballew, GM’s executive director of market and industry analysis.

“It’s about maintaining our momentum and conveying it to consumers most effectively,” Ballew said. “It’s part of the overall plan; it was not an emergency, knee-jerk reaction to weak sales in May.” GM’s sales declined 12.4% in May.

Paul Taylor, chief economist for the National Automobile Dealers Assn., noted that American luxury brands, such as GM’s Cadillac and Buick divisions and Ford’s Lincoln, have been languishing and that the incentives could boost their fortunes.

“Both GM and Ford have to find a way to stop this decline,” Taylor said.

The GM program offers no-interest financing on 2002 Buick, Cadillac, Chevrolet, Oldsmobile and Pontiac-GMC cars and trucks for 36, 48 or 60 months, depending on the vehicle. The deal ends Sept. 3 and does not include Saturn, Saab or Hummer vehicles.

Wall Street expects GM’s move to be costly. The program is costing GM $2,777 per vehicle, said auto analyst John Casesa of Merrill Lynch & Co.

“This appears to be an expensive program; one that fits the multiyear pattern of an industrywide increase in incentives, and suggests that GM is concerned about the industry sales outlook,” Casesa said in a research note to clients. “However ... GM’s incentives [and for that matter the industry’s], have typically risen dramatically every summer as the company works to clear out old model stock.”

Ford is offering up to $3,000 back or financing rates from 0.9% to 4.9%, with a handful of vehicles with no-interest financing for 36 months. The program runs through Sept. 30 but does not include Ford’s Thunderbird or SVT (Special Vehicle Team) performance vehicles.

Car and truck sales in the U.S. last year reached 17.1 million, second only to the record 17.4 million sold in 2000.

Economists have expected the auto market to contract this year as well. Based on the first six months, sales are on pace to reach about 16.7 million in 2002.

Brands that gained ground in the first half of the year included Toyota, Lexus, Nissan, Acura, Mitsubishi, Mercedes-Benz, Saab and Kia. Infiniti, BMW and Hyundai were all up more than 16%.

Losers, besides the American Big Three, were Honda and VW, which were down only about 1% compared with the first six months of last year, and Audi, Mazda, Subaru, Isuzu, Suzuki and Volvo.