Auto Incentives Will Continue Through Year

by Karl Greenberg, Sep 22, 2006, 5:00 AM

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Despite major production cuts from GM, Ford and DaimlerChrysler, the global auto market will remain mired in overcapacity. So buyer incentives won't go away soon, say analysts from Standard & Poor's and J.D. Power and Associates.

Overcapacity means market share gains will have to be won by conquest-stealing customers from other brands. The growth segments will be crossover vehicles and compact cars.

This was the outlook presented to an audience of investment banking analysts at the McGraw Hill event, Auto Industry Hot Topics. (McGraw Hill owns J.D. Power.)

Speakers at the event downplayed General Motors' positive second-quarter results, and were pessimistic about Ford. And, despite Toyota's success in boosting the image of hybrid vehicles with Prius, they saw little chance for that market to explode over the next six years.

Robert Schulz, director, corporate and government ratings, Standard & Poor's, said that GM's new 100,000-mile warranty campaign may help move some vehicles, but the fundamental issue with both GM and Ford is consumer perception.

"There is relatively little difference in actual quality between the major automakers now," he said. Certain GM and Ford brands--such as Lincoln, Chevrolet, GMC and Jaguar--even rank well above average, among the top 14 brands in J.D. Power's revered Initial Quality Study.

"But it takes a long time to change consumers' perceptions," Schulz said. Other Big Three difficulties: shortsightedness at predicting trends and design shifts (e.g., crossovers and hybrids), and underfunding of new products.

Tom Libby, senior director of industry analysis for J.D. Power, said that crossovers will outsell SUVs for the first time this year, and will increase by 319 percent through 2012.

In the first eight months of 2006, SUV sales were down 18 percent, while CUV sales increased 7.9 percent versus the same period last year.

Fuel efficiency is the major factor in how full-sized sales are dropping--but for mid-sized SUVs it is also comfort, handling, and appearance, he said.

The consultancy's research suggests that gas mileage and environmental impact are not significant sales drivers at all. This year, Libby said, gas mileage was the eighth most important factor in vehicle purchase, right behind "liked image vehicle portrays." Environmental friendliness was dead last, behind "better warranty."

California, which represents 13 percent of the U.S. auto market, announced this week that it is suing six automakers--GM, Ford, Chrysler, Toyota, Nissan and Honda--for contributing to global warming.

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