GM Seeks to Boost Sales With Incentives

General Motors Corp. said Tuesday that it would launch zero-percent financing incentives to boost sluggish sales, but its stock price dropped nearly 7% as analysts issued negative reports on the automaker’s outlook.

Despite a successful employee buyout that will slash GM’s hourly payroll by almost one-third this year, some analysts said they believed that the company would continue to burn up more cash than it could save.

Investors were spooked by negative reports from Banc of America Securities and Citigroup and by GM’s acknowledgment that it expects its June sales to be down more than 30% from last June’s record highs.

In heavy trading Tuesday, GM shares dropped $1.85 to $25.90.

The giant automaker is struggling to cope with diminishing U.S. market share and a $10.6-billion loss last year. Chairman and Chief Executive Rick Wagoner has been closing plants, slashing payroll and cutting other operating costs to try to turn GM’s money-losing North American automotive operation profitable by 2008.

Wagoner said Monday that 35,000 hourly workers would leave the company by the end of the year, saving it almost $1 billion in annual operating costs.

But GM’s slipping sales continue to cloud its outlook. Sales are off 8% so far this year, and its 23.5% U.S. market share for the first five months is an 80-year low.

Cautioning that last year’s June sales were driven to all-time highs for that month by GM’s “Employee Discount for Everyone” program, North American sales chief Mark LaNeve said Tuesday that he expected “that year-over-year comparisons are going to be especially brutal.”

When GM announces June sales Monday, the total probably will be more in line with the 370,925 vehicles the company sold in June 2004 than the June 2005 tally of 544,215 sales, LaNeve said.

To help move inventory and make room on dealers’ lots for the 2007 models, GM said it would launch Thursday a zero-percent financing sale on many of its key 2006 models. The sale will run through Tuesday.

DaimlerChrysler is expected to introduce a major incentive program Friday, perhaps a employee-discount plan. Ford Motor Co. sales chief Francisco Codina said Tuesday that Ford intended to stay with its present incentive program, which includes zero-percent financing and $1,000 fuel allowances.

Regardless of what competitors do, LaNeve said, GM won’t reintroduce the employee-discount plan that helped boost sales but cut deeply into earnings last year. That program was simply too costly, he said.

Even with the progress Wagoner has reported in recent weeks -- a first-quarter profit, the successful buyout program, agreements with the United Auto Workers union to increase retirees’ share of their medical insurance costs -- some auto industry analysts continue to express grave doubts about turnaround prospects.

In a letter to investors Tuesday, Citigroup’s Jon V. Rogers said GM’s declining sales “could significantly diminish potential restructuring progress.”

Rogers said he was especially concerned about the effect of gasoline prices -- still hovering near $3 a gallon in major urban markets -- on sales of GM’s principal profit makers: large pickups and sport utility vehicles.

Banc of America Securities analyst Ron Tadross wrote to investors Monday that he believed “GM management is glossing over the current and future cost of rightsizing the business.”

Tadross said GM’s recently arranged $4.5-billion secured credit line was a signal that it remained cash-starved. He predicted a “serious cash burn” by the end of the year because of weak sales.