DETROIT (Reuters) -- As prices rise, demand falls.
That's the basic economic lesson the U.S. auto industry will likely offer on Monday when it reports October auto sales.
October's sales of new cars and light trucks are expected to hit a seasonally adjusted annual rate of about 16.1 million, according to a survey of analysts by Reuters. That would be the second month of decline in the sales rate, from 18.9 million in August and 16.7 million in September, but ahead of the weak 15.3 million rate of October 2002.
Once again, incentives will provide the best explanation for the results. After boosting rebates, no-interest loans and other deals to an average of more than $3,000 per vehicle in August, automakers have mostly filled inventories with 2004 models carrying far less generous offers -- similar to the pattern that produced last October's results.
In a research note, Goldman Sachs analyst Gary Lapidus said Detroit tried to strengthen its prices in October.
"However, better price appears to be coming at the expense of volume, proving Milton Friedman's adage, 'there's no free lunch'," he said.
Auto executives suggested at the start of October that the strengthening U.S. economy could reduce the need for some incentives. Some had anticipated the booming third-quarter growth in the U.S. economy announced on Thursday, citing improving employment figures as proof that demand for new cars and trucks should strengthen in coming months.
DEALS IN THE DRIVER'S SEAT
But analysts say prices are still driving the market, and they expect automakers to boost their 2004 deals to maintain sales.
Already this month, General Motors added an early lease termination program, while Ford Motor Co. brought back five-year, no-interest loans on its Ford Explorer SUV.
"The average incentive outlay for the Big 3 could decline modestly in October before likely ramping up again in November," said Credit Suisse First Boston analyst Chris Ceraso.
After two months of strong sales, most analysts see GM reporting flat to lower sales in October, as the world's largest automaker had a higher percentage of 2004 models in its inventory than either Ford or Chrysler at the start of the month.
Paul Ballew, GM's executive director of market and industry analysis, told Reuters on Monday that GM's sales could be a bit weaker in October than last year's level.
Ford is expected to report flat to slightly higher sales, with demand for the new F-150 pickup making up for weakness in car sales. And after two rough months, Chrysler is expected to report higher sales thanks mostly to a favorable comparison with a weak October 2002.
Better results are expected from Toyota Motor Corp., Honda Motor Co. Ltd. and Nissan Motor Co. Ltd. All could report sales gains of more than 10 percent, thanks mostly to new models.