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Pressure intensifies on GM

Sat., Nov. 26, 2005

DETROIT — Despite a new round of discount offers, November will likely be another disappointing month for sales and profitability at General Motors Corp., intensifying pressure on the world’s largest carmaker to speed up or expand the job cuts and plant closings it announced this week.

GM, Ford Motor Co. and DaimlerChrysler AG’s Chrysler Group launched new price breaks in mid-November to lure customers to dealerships. The strategy worked, but not enough to counter other factors like jittery consumers and the hangover effect from a summer of near-record sales, industry analysts say.

“It seems that November got off to an excruciatingly slow start, with new incentives programs from Ford and GM just now beginning to boost showroom traffic,” Merrill Lynch analyst John Casesa said this week in a note to investors.

Sales in the U.S. market — the largest in the world — can make or break automakers. Profits at GM, in particular, have been dragged down in recent months by faltering sales in North America, where it lost nearly $5 billion in the first nine months of this year. And while discounts boost sales and help cover fixed costs, they typically don’t translate into higher profits.

Casesa said GM will likely see its eighth month of year-over-year sales declines this year. Those declines paused only over the summer, when GM allowed consumers to pay the employee price for their vehicles.

Ford also will likely see double-digit declines as sport utility vehicles continue to falter, Casesa said. Chrysler has been buoyed in the past by hot models including the Chrysler 300 sedan and a big increase in fleet sales, but it probably will be dragged down in November, Casesa said.

Asian automakers saw steadier sales in November, shielded from the downturns because they sell fewer trucks and SUVs and they didn’t offer employee discounts over the summer. David Healy, an analyst with Burnham Securities, predicted Toyota Motor Corp. could see a 12 percent jump in November while other Asian automakers will see smaller increases.

Healy said the summer’s heavy sales will combine with the weak fall for a year that’s on par with last year in terms of total sales.

“Despite concerns that the current sales weakness represents a new recession in vehicle sales, we believe that the explanation continues to be payback for last summer’s excesses,” Healy said in a note to investors.

Automakers are scheduled to report their November results on Thursday.

The November results are another bitter pill for GM, which announced on Monday a plan to cut 30,000 jobs and close 12 facilities.


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