US Auto sales seen weaker in June, GM to take hit

Reuters / DETROIT -- Higher gasoline prices and interest rates took a toll on U.S. vehicle sales in June, with General Motors braced for a sharp decline from last year's incentive-boosted numbers, analysts and executives said.Analysts expect overall U.S. sales to be between 16.0 to 16.5 million vehicles on an annualized basis in June, up slightly from May, but down from a year earlier when GM first rolled out employee-level pricing, touching off a summer price war in Detroit.

Once again, Japan's leading car makers are expected to be the only big winners, continuing to gain share and benefit from their reputation for fuel efficiency."

Gas prices continue to be a drag on the market," Merrill Lynch analyst John Murphy said. "We expect this to weigh on both total sales and (product) mix as consumers focus on smaller more fuel efficient vehicles." GM, the world's No. 1 automaker, has warned the market that sales comparisons with last year's strong numbers will be ugly.

GM Vice President Mark LaNeve said last summer's sweeping promotions would mean sales would fall far short this year."Our year-on-year (comparable sales) are going to be especially brutal," he told analysts and reporters this week.

GM forecast its sales might fall more than 30 percent from a year earlier in June, down to 2004 levels.GM, which has seen its U.S. auto sales slip 8 percent in the first five months of the year, recorded a 41 percent jump last June after it began offering U.S. consumers the same discounts it gives to employees. That move was matched a month later by Ford Motor Co. and Chrysler Group.

This year, GM has vowed to stick to a strategy of offering more limited discounts, started with a zero percent financing offer on many 2006 models over the upcoming U.S. holiday weekend.Sales of cross-town rival Ford Motor Co., which is offering big cash discounts to consumers, are forecast to decline in June in the range of 5 percent to 6 percent.Overall June sales for the traditional Big Three could also have been hurt by reports that better discounts would be available starting next month, Bear Stearns' analyst Peter Nesvold said.

That slump seems to be more pronounced in the last week of the month, typically a busy period for car dealerships, Burnham Securities analyst Dave Healy said.Chrysler Group, the U.S. arm of DaimlerChrysler AG, is gearing up to roll out an aggressive new sales promotion campaign for July, which is expected to include employee-level pricing and money-back guarantees.News of the promotion campaign was widely reported after Chrysler briefed dealers on its plans, prompting some to warn of a slow month to cap an especially tough quarter.

Chrysler, sitting on an unsold inventory of over two months of vehicles, has had to resort to the biggest discounts of any of the automakers this year.In June, Chrysler was offering incentives of up to $5,000 with zero percent financing on its Durango sport utility vehicle and up $3,500 on the Ram 1500 Mega Cab pickup.DaimlerChrysler AG Chairman Dieter Zetsche indicated this week that Chrysler's sales would be down in June. "For anyone but Toyota, it was a relatively slow month," he said.Meanwhile, U.S. sales of Toyota Motor Corp. may be up as much as 15 percent this month, Burnham's Healy said. Honda Motor Co Ltd is also expected to gain ground."

Sales are coming in pretty strong. We think we are going to be up," Dick Colliver, executive vice president of American Honda, told reporters on Wednesday. "We are forecasting that we are going to be up a few percentage points for the month."Colliver was speaking at a news conference in Indiana after Honda chose the state to host a new assembly plant to meet increased demand for its vehicles.