Detroit - Ford Motor Co. and General Motors say their excessive inventories are under control heading into the second half.
That means the incentive wars should cool. But profits will still be scarce because the economy is sluggish and Asian manufacturers continue to gain ground in the United States.
Second-quarter profits at GM and Ford were slim or absent. GM posted net income of $477 million, and Ford had a net loss of $752 million.
Dollar helps Asians
In the first half, GM unit sales in the United States dropped 6.4 percent and Ford's fell 11.5 percent. As sales fell, the two companies were busy handing out rebates and other incentives to reduce inventory and fight resurgent Asian brands. Ford had the extra burden of the Firestone tire recall.
The Asians were aided by a strong dollar, which enabled them to offer attractive prices to American shoppers.
John Devine, CFO of GM, said both Toyota and Honda used higher incentives in the second half to boost sales. The yen weakened 12.2 percent from Dec. 1, 2000, through Thursday, July 19. A weaker yen gives the Japanese parents more yen per dollar of sales in the United States.
'The good news is that inventory is in line' with production heading into the second half, he said.
The U.S. industry had a 56-day supply of vehicles on July 1, compared with 68 on May 1, according to the Automotive News Data Center. GM had a 62-day supply on July 1; Ford had a 61-day supply.
GM plans to reduce production 6 percent in the second half compared with the same period last year to keep inventories under control.
Devine said he was heartened by a modest decline of 0.2 percent in GM's overall prices in the second quarter, despite the widespread incentives. He said the small reduction indicated GM's new products, such as the trio of mid-sized sport-utilities - the Chevrolet TrailBlazer, GMC Envoy and Oldsmobile Bravada - are being well received. The figures amount to invoice prices minus incentive costs.
Nevertheless, GM continued its slide in market share in the second quarter. The company reduced sales to daily rental fleets, which helped drop U.S. market share to 28.1 percent in the first half compared with 28.6 percent in the same period of 2000, according to the Automotive News Data Center.
Moving beyond Firestone
Meanwhile, Ford's marketing costs as a percent of revenue in the United States rose to 14.1 percent, an increase of 2.8 percentage points from the second quarter of 2000. Ford does not detail the marketing costs, but most of the spending represents vehicle incentives.
Industrywide clearance sales were needed to reduce inventory. Stocks are more balanced and incentives should stabilize at existing levels, said Henry Wallace, Ford's outgoing CFO.
'We came into the year at an 88-day supply (of vehicles), and now we are at a 61-day supply,' he said. 'Production is in line with market demand.'
Ford's U.S. market share in the first half slid to 23.3 percent, from 25.1 percent in the same period of 2000.
Ford in the second quarter posted essentially all the $2.1 billion after-tax charges for the recall of 13 million Firestone tires.
GM's operating profit was $610 million. It posted a $133 million charge due to restructuring at Isuzu Motors Ltd. Ford's operating loss was $551 million. The company had a $201 million charge related to Mazda Motor Corp.
Staff Reporter Mary Connelly contributed to this report.