Some big automotive retailers and car dealerships are cutting back their orders for General Motors’ 2005 models, potentially reducing the automaker’s North American production and profits in coming months, the Wall Street Journal said on Friday.
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The dealers have too many unsold vehicles and worry that big discounts will not attract buyers, as US job growth slows and fuel prices stay high, the newspaper said, according to Reuters.
BB Hollingsworth, chief executive of Houston-based Group 1 Automotive, which has 91 dealerships, told the newspaper: “We are being very cautious scaling back our 2005 orders to clear out our long position on these 2004 models with big incentives.”
GM, based in Detroit, told the newspaper it has not noticed a big reduction in ordering activity.
But Paul Ballew, GM’s executive director for market and industry analysis, said GM is cutting North American production this quarter by 5% from a year earlier.
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By GlobalData“We don’t see it as (a challenge) that is unmanageable,” he reportedly told the newspaper.
Reuters noted that GM is trying to reduce a near record high 1 million-plus inventory of unsold vehicles. Earlier this month, it raised incentives to as much as $US2,500 on most new 2005 models for consumers who finance vehicles through its General Motors Acceptance finance arm. It also announced incentives as high as $5,000 on 2004 model cars and $6,000 on 2004 model trucks.
Lower production might hurt GM’s bottom line because the automaker books revenue and profit when it builds vehicles and ships them to dealers, not when customers buy them, the newspaper said.
Analysts polled by Reuters Estimates on average expect GM to post per-share profit of 94 cents for the third quarter, $1.57 for the fourth quarter and $7.10 for the year.
