Rough ride for the US carmakers

GENERAL Motors, Ford and DaimlerChrysler are losing US market share to nimble foreign carmakers. They are also forced into profit-killing price wars with each other and are facing a saturated market of anxious American shoppers.

General Motors leads Detroit's Big Three with a year-end trading statement on Thursday, closing the door on a topsy-turvy year for carmakers' profits figures that started strongly but ended with ominous signs.

Of the three, only GM will report strong profits for the year with analysts expecting $6.52 a share, according to Thomson First Call. Ford, in the middle of a wrenching turnaround from mammoth losses in 2001, is expected to end the year in the black, showing a gain of about 45 cents a share.

The coming year is a giant guessing game, with investors and analysts nervy about recent sales trends. Early data indicate December car sales were up but not enough to offset double-digit declines in October and November.

Alarm bells are ringing. Bond rating agencies have issued alerts. Standard & Poor's cut GM's long-term credit rating because its US pension plans are underfunded by about $19bn (£11.9bn).

North American car sales are expected to be flat or even down for most of this year. 'After a string of exceptionally good sales years, the market is evidently saturated,' said S&P credit analyst Scott Sprinzen.

Ford responded by cutting back on production late last year while General Motors launched another price war, offering big incentives on sports utility vehicles (SUVs) and pick-up trucks. Analysts said it is a bad omen because light trucks, vans and SUVs were the one area of strong profit left in the carmakers' inventory.

The incentives cut profitability and now the carmakers are extending the deals to other models. The more incentives, the smaller the profit per car sold.

Paul Bellew, GM's director of industry sales analysis, expects US light vehicle sales to fall by 500,000 next year to about 16m.

Foreign carmakers, now offering successful versions of light trucks and minivans after years of ceding the market to the Americans, are causing the problem. Their sales suffered far less than those of their US rivals during the year-end dip.Toyota's sales fell 3.3% and Nissan dropped 1.6%, in November compared with America's carmakers double-digit declines.

GM expects earnings to drop to about $5 a share in 2003. Ford chairman William Clay Ford said his company will earn 70 cents a share this year, twice what analysts are predicting. Ford is expected to provide evidence the company will continue its turnaround when it reports its 2002 results next week.