Car Makers May Have To Cut Production

Detroit February 25, 2003; Bill Koenig writing for Bloomberg reported analysts said that General Motors and Ford Motor Co. may have to slash North American production as more cars and light trucks start to collect dust on dealer lots.

Ford may need to reduce the number of vehicles it produces by 8 percent this year, and General Motors by 4 percent, Lehman Brothers analyst Darren Kimball said. Ford may end the year with a 94-day inventory of vehicles, and General Motors with an 81-day supply, he said. Many analysts consider a 60-day supply optimal.

Increased dealer inventories show that the low-interest loans and rebates that shored up demand since the Sept. 11 attacks are losing their effectiveness, analysts said. A drop in sales would hurt earnings, jeopardizing the ability of General Motors and Ford to finance pension obligations that exceed expected returns.

"Inventories will be consistently too high, as GM chases market share goals and spurs further incentive wars," Kimball wrote in a report. "As bad as this looks, however, it is far better than Ford's predicament."

More incentives?

The automakers, plus DaimlerChrysler AG's Chrysler unit, may have to cut production or reduce prices, or both, Goldman Sachs analyst Gary Lapidus wrote in a report. Chrysler is the North America's third-biggest automaker.

General Motors' first-quarter production forecast for North America is 1.43 million cars and trucks, up almost 6 percent from the same time last year, and Ford expects to produce 1.04 million vehicles in the first quarter, down 1.7 percent from last year's period. The companies haven't issued production estimates for the full year.

Cutting production "is a refrain we've heard over the past four or five years," said George Pipas, who is in charge of analyzing sales figures for Dearborn, Michigan-based Ford. "Each time they and we have been proven wrong."

The automaker is still assessing production levels beyond the first quarter, Pipas said.

Ford may cut production of its best-selling F-150 line when it switches to the new 2004 model of the pickup at two factories, Ford executives have said.

GM holds to forecast

"We're not making any changes to our forecast," said General Motors spokesman Pat Morrissey.

General Motors had a $19.3 billion U.S. pension deficit at the end of 2002, the most of any company, and Ford's global shortfall was $15.6 billion.

Shares of Detroit-based General Motors have declined 38 percent the past year while shares of Ford have slid 43 percent, and U.S. shares of Stuttgart, Germany-based DaimlerChrysler have fallen 21 percent.