AUTO INDUSTRY Rising inventories prompt Big 3 to boost incentives

KNIGHT RIDDER NEWSPAPERS
DETROIT -- April's sluggish sales have led to the largest buildup of light vehicles in 13 years, with trucks faring the worst, according to a top automotive analyst.
"Higher incentives are an imperative," unless automakers cut production, John Casesa of Merrill Lynch wrote in a report released this week, shortly after Detroit's automakers ramped up incentives on their key trucks, especially sport utility vehicles.
"This is the third-largest inventory gap since the early 1990s," he wrote.
Automakers reported that the industry sold 1.4 million new cars and trucks in April -- essentially the same as April 2003, when the country had just embarked on a war with Iraq that caused consumers to hold back on purchases and to worry about rising gas prices. Because this is the spring selling season and the economy is on the mend, the performance did not measure up to expectations.
Numbers
As a result of sluggish sales, inventories swelled to about 4.2 million units, or about a 78-day supply, at the end of April, Rob Hinchliffe, an auto analyst with UBS, concluded. That is an excess inventory of about 650,000 cars and trucks, Casesa estimated.
A desirable level of inventory is between 60 days and 72 days of supply, with April averaging about 64 days over the past five years. But Ford Motor Co.'s stock grew to about 91 days supply at the end of April, with General Motors Corp. and the DaimlerChrysler AG's Chrysler Group at 88 days and 83 days, respectively.
Truck supplies are 25 percent above normal, while car stocks are 14 percent higher than normal, Casesa wrote.
Incentives
Ford and Chrysler boosted their cash-back and financing deals this week on light trucks, which account for most of their profits.
GM also enhanced its incentives on midsized SUVs by another $1,000, even though it's already offering truck buyers a choice in fairly substantial incentives.
They can pick the Truckfest program, which offers no-interest financing plus $1,000 cash back on virtually all light trucks, or its standard cash-back programs, which range from $500 to $3,500 depending on the model. Consumers opting for the big rebate program do not qualify for the interest-free financing.
But now, GM said it will offer the $1,000 bonus on either of those two programs for consumers purchasing a GMC Envoy, Chevrolet Blazer, Chevrolet Trailblazer, Oldsmobile Bravada, Buick Rainier, Buick Rendezvous and Pontiac Aztek, said GM spokeswoman Deborah Silverman.