Rather than let demand fall and plants go idle, automakers offered generous incentives to buyers in the wake of 9/11. But if the country slips into recession next year, it appears that automakers are
more likely to accept fewer sales at higher prices.
Incentives won't go away, to be sure, and no Detroit automaker is talking recession publicly. But both Ford and GM are already
choosing to cut production to meet reduced demand.
"We believe that participants in the automotive economic cycle are likely to go back to the older recession playbook," Brian Johnson
of Lehman Brothers says in a note to investors. Automakers "may not step up with incentives in 2008 and let demand and production fall--while ideally using the opportunity to further reduce structural
costs." And analyst Peter Nesvold of Bear Stearns notes that incentives--particularly for trucks--"are coming off a substantially higher base" than they were at the last economic downturn.
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