Ford trucks
David Zalubowski  /  AP file
Unsold Ford F-150 pickups sit at a Denver dealership. Facing high gasoline prices and a weakening housing market, analysts expect U.S. automakers to boost incentives this summer to empty their lots.
By Roland Jones Business news editor
msnbc.com
updated 5/9/2007 11:14:00 AM ET 2007-05-09T15:14:00

If you’re in the market for a new pickup truck or sport utility vehicle, you might be better off waiting a month or two before you make a purchase.

After posting some rather dismal sales results for April, analysts expect the big automakers to do something this summer that they’ve been trying to avoid: bring back generous sales incentives to lure on-the-fence shoppers back into their showrooms.

A confluence of macroeconomic forces is driving the move, notes Jesse Toprak, executive director of industry analysis at automotive Web site Edmunds.com. He cited rising gasoline prices, which some say could hit $4 a gallon this summer, and weakening real estate prices, which have reduced the amount of cash that consumers have on hand for purchases. Both are having at least a psychological impact on would-be car buyers, he said.

“We usually see a rise in incentives from this point on into the summer, and it’s almost guaranteed we’ll see higher levels of incentives this year because of the very low volume of sales we saw in April,” said Toprak, noting that big trucks and SUVs are likely to see the greatest discounts.

“There’s a general uncertainty in the critical markets of California and Florida because of housing values, and in Florida some cities’ housing values are down 10 percent or more compared with last year,” he said. “So if your house’s value has declined over the last year, you probably won’t be in the mood to buy a new car, so the housing market is having a psychological impact on car buyers. And in April we may have seen consumers putting off their purchases and waiting for the next big sales promotion in the summer.”

Toprak expects a tough summer for the big U.S. automakers, which still make a large portion of their money from selling large SUVs and trucks, which tend to be more profitable than basic midsize passenger cars — a market segment that the Big Three have largely ceded to Asian automakers like Honda and Toyota.

“If gas prices continue to stay high, what people will want to buy is not what the Big Three U.S. automakers will want to sell,” Toprak said.

With average gas prices now over $3 per gallon, less-efficient trucks and SUVs are likely to be a tough sell for the Big Three. The market for full-size pickups is off 5 percent over the past four months, compared with the same period in 2006, according to Autodata.

GM fired a salvo last week when it rolled out a new round of sales incentives for its redesigned full-size pickup trucks, saying it needs to keep up with deals being offered by competitors. GM is offering zero-percent financing deals on 36-month loans for certain versions of its Chevrolet Silverado and GMC Sierra. Similar incentives are expected from Ford and Chrysler unit.

GM CEO Rick Wagoner told CNBC that he’s seeing a replay of last year’s sales pattern — a move away from larger vehicles and toward smaller ones.

“About this time [last year], gas prices began to move up above $3 a gallon, and that has resulted in some sort of shift toward smaller vehicles,” Wagoner said. “We are seeing it shrink the market a little bit. April sales for the industry were not particularly strong, and it’s fair to say that the U.S. market isn’t very robust.”

Rising gas prices and consumers’ unwillingness to buy big trucks has been the norm over the last few years says Toprak, but now GM is offering incentives on its new pickups, and the new Toyota Tundra is seeing incentives very early in its product life cycles he notes — this shows macroeconomic factors are starting to have an impact, and these are factors that GM and Toyota had no control over.

Toprak also notes that the decline in housing has weighed on business purchases, so that contractors buying trucks have reined in their spending. And higher gas prices are keeping recreational truck buyers out of automobile showrooms. But the trend can be offset with  generous incentives, he added.

“They need to stimulate retail demand, and that’s what you will see automakers do over the next few months,” Toprak said. “It’s going to be a tough summer ahead, but not altogether unexpected."

Edmunds had projected a 3 percent decline in vehicle sales this year, but Toprak said that could move to 4 percent if gas prices stay high.

GM, Ford and Chrysler have said they want to spend less on incentives that cut into their profits and cheapen the images of their vehicles. But through April, incentives from the Big Three are on average $167 higher per vehicle than they were a year ago, according to Autodata. And those numbers could go higher if May is another weak month and inventories start piling up.

The Associated Press contributed to this report.

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 2.43%
$30K home equity loan FICO 5.80%
$75K home equity loan FICO 4.54%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.57%
13.57%
Cash Back Cards 17.91%
17.91%
Rewards Cards 17.15%
17.15%
Source: Bankrate.com