By Justin Hyde
SAN FRANCISCO, Jan 31 (Reuters) - The head of General Motors Corp. vowed on Friday that the world's largest automaker will stick to its strategy of boosting sales through aggressive incentives, saying it was good for GM and the industry.
Chairman-elect and Chief Executive Rick Wagoner also said the U.S. market for new vehicles could grow by 1.8 million units over the next 10 years, thanks to a growing population, a strong economy and continued price cutting.
"There's been an inordinate amount of finger-pointing and hand-wringing over this matter," Wagoner said in a speech to a J.D. Power and Associates conference, referring to GM's aggressive incentives strategy.
"I say it's time to stop whining and play the game. At GM, we're going to do what works for us."
GM has led the U.S. market in rebates, no-interest loans and other incentives for much of the past year, as its average incentive per vehicle hit $3,370 in December. After backing off slightly at the beginning of the year, GM has raised incentives twice this month.
Wall Street analysts and other automakers, most notably DaimlerChrysler AG , have warned that GM's push was harming the industry by training buyers to look only for deals, and was eating future demand.
But GM was able to increase its fourth-quarter North American automotive profits by 61 percent, to $692 million, even though its net prices declined 3.2 percent. By comparison, Ford Motor Co.'s net prices rose 1.8 percent in the same quarter, but Ford's North American auto unit was unprofitable.
Some analysts said GM's North American unit underperformed because of the larger-than-expected drop in net price. GM has not given a specific forecast for net price this year, but Wagoner said incentives were better than their alternatives.
"Would we prefer to reduce incentives? Sure," Wagoner said. "But not if the price is lower production, lower productivity, lower profitability, lower cash flow, fewer jobs, declining dealer productivity and an increased chance for a recession in the economy as a whole. That doesn't sound like winning to me."
TOUGH EARNINGS OUTLOOK
GM has been able to profit from incentives, thanks to years of cost-cutting in parts prices and factories that have made it more productive than Chrysler or Ford, along with improvements in quality. But analysts expect GM's North American earnings will drop in 2003 with mounting pension costs, forecasts for falling U.S. sales this year and downward pressure on prices.
GM's pretax costs for its U.S. pensions totaled about $1 billion last year, or roughly $250 million each quarter, and are forecast to rise to nearly $3 billion in 2003. But GM sees stronger results by around 2005, and the company is still sticking to a previously announced target for earnings of $10 per share by mid-decade, excluding any one-time items.
Wagoner said the U.S. auto industry had seen prices decline for the past six years, making vehicles more affordable to the average buyer but not at the rate seen in other industries such as computers.
He said that just as the U.S. industry's annual sales of roughly 17 million vehicles for the past four years was once thought unlikely, there was still room for American consumers to buy up to 18.8 million vehicles a year within a decade, as the population grows immigration and a stable birth rate.