The Chrysler group's disclosure last week that it will post a $1.18 billion loss this quarter because of high incentive spending and residual losses on off-lease cars points to a mounting problem for the entire U.S. auto industry.
Calling Chrysler's action a "bombshell," John Casesa, senior auto analyst with Merrill Lynch in New York, warned in a commentary that General Motors and Ford Motor Co. face similar problems.
"Since Chrysler accounts for just under 15 percent of the U.S. light-vehicle market, it's hard to believe that these same problems will not afflict GM and Ford," Casesa said.
GM and Ford last week said that the problem will not hit them because their accounting practices prevent such unpleasant surprises. But experts aren't so sure.
Last month, industrywide spending on incentives mushroomed to a sales-weighted average of $3,308 per vehicle from $2,884 for all of 2002, according to CNW Marketing/Research in Bandon, Ore. The Big 3 spent an average $3,649 per vehicle last month - or nearly $2,000 more than Toyota, Honda or Nissan - CNW says.
Meanwhile, residual losses on off-lease vehicles have risen to an average $1,555 this year, from $1,055 in 1998, according to CNW. Given the number of vehicles coming off lease this year, "Total residual losses will be about $5 billion," CNW President Art Spinella says.