DETROIT -- This was to be a year of rebirth for Detroit's Big 2. A stream of new products would deliver big market share gains and keep factories humming. But that's not what happened.
General Motors and Ford Motor Co. have reached a tipping point. Incentives aren't working, new cars aren't generating excitement, and America's automakers are whacking production.
The Big 2 are getting smaller.
Dealers have loads of inventory on their lots, and suppliers are falling in line with profit warnings because of reduced volume.
GM and Ford have launched a series of understated cars in the past several months that aren't setting the world afire. Meanwhile, vaunted truck sales are tumbling.
Bottom line: The two companies are in a jam. In February, GM and Ford's combined market share slid to 43.1 percent, down from 47.6 percent in February 2003.
According to a study released this week by automotive Web site Edmunds.com, several vehicles introduced by Ford and GM already require big incentives.
The Pontiac G6 sedan's transaction price is 19.9 percent below its sticker price, while the Buick LaCrosse's is 14.7 percent below its sticker. The Mercury Mariner SUV's transaction price is 13.6 percent below its sticker.
Transaction prices are what the customer pays for a vehicle, once factory incentives and dealer discounts are factored in.
By comparison, the industrywide discount on newly introduced vehicles averages 9.0 percent, according to Edmunds. The discount on new models from Honda, Nissan, Toyota and Hyundai did not exceed 3.6 percent.
GM typically raises sticker prices even as it offers big rebates and 0 percent financing. In recent years, it raised sticker prices even as it offered big rebates and 0 percent financing. This strategy allows GM to prop up transaction prices even as it lures customers with big discounts.
But discounts are losing their allure, and demand is lukewarm. Even though sales of the Ford Five Hundred sedan and Pontiac G6 edged up in February, analysts are still waiting for the big sales kick.
"The G6, Five Hundred and LaCrosse are just pretty soft right now," say Jesse Toprak, director of pricing and market analysis for Edmunds.com.
Ford has a 90-day supply of the Five Hundred, and the G6 has an 80-day supply as of March 1. Meanwhile, the Buick LaCrosse and Chevrolet Cobalt car both carried 117-day supplies as of March 1. A 60-day supply is the industry standard.
The Five Hundred and the G6 "should have had better starts than they've had." What's worse, there is not much on the horizon for GM and Ford to get excited about.
Twelve suppliers built factories in a $250 million industrial park near Ford's Chicago assembly plant. Their investment rides on the fortunes of the Ford Five Hundred and Freestyle and the Mercury Montego.
This year, GM will launch the Buick Lucerne sedan, Hummer H3 SUV, Chevrolet HHR, Cadillac DTS sedan, and Pontiac's Solstice roadster, Torrent minivan and G6 coupe. Lincoln has launched the Mark LT pickup. This year, Ford Division will introduce its Fusion mid-sized car and Mercury will launch its Milan counterpart.
These products will be important to their brands, but analysts don't expect them to generate large sales increases. "The overall pool is statistically insignificant," Hall says.
Even the new generation of GM SUVs and trucks due early next year won't necessarily save the day, says Merrill Lynch analyst John Casesa.
"We believe that GM's market share losses are systemic and that even with the contribution of the GMT 900 (light trucks), GM is unlikely to reverse its share slide as volumes of its carryover products decay."
Last month, GM's market share slipped to 24.2 percent, its lowest point since the summer of 1998, when a strike halted production. And it's a far cry from just a year ago, when GM executives wore "29" pins that symbolized their goal for market share.
Meanwhile, Ford's market share in February was 18.9 percent, down from 24.6 percent in February 1999.
Analysts predict GM could finish the year between 24 percent and 25 percent. Ford Motor might finish below 18. It all adds up to trouble.
In a report to investors in which he recommended a sell rating on GM and Ford Motor Co., Bank of America Securities analyst Ronald Tadross was blunt: "Recent developments underscore there is no way out of the box in which we see GM and Ford."
Casesa of Merrill Lynch describes GM and Ford Motor Co.'s performance this year as "terrible." He says: "It looks like it will get worse before it gets better."
You may e-mail Jason Stein at [email protected]