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UPDATE 1-GM sets new U.S. sales incentives for March

(Updates throughout)

By Michael Ellis

DETROIT, Feb 28 (Reuters) - General Motors Corp. , which has led Detroit's price war, on Friday set new U.S. vehicle sales incentives of $2,000 cash back on most models, with a "loyalty" reward of an additional $1,000 cash for current owners of most GM cars and trucks.

The automaker also said it will offer zero percent financing on most of its models for up to three-year terms, and an additional few models will have interest-free financing for loans lasting up to five years.

GM, which first began offering zero percent financing shortly after the Sept. 11 attacks to kick-start sales, had offered cash rebates of up to $3,000 on most of its cars and trucks on its previous incentive program, which expired on Friday.

GM's Hummer, Cadillac, Saab divisions and the Chevrolet Corvette sports car are excluded from the program.

Industry analysts said that GM's incentives have been losing their punch with jittery consumers heading into the peak spring sales season due to nervousness over a U.S.-led war in Iraq, the weak stock markets and the slow economic recovery.

GM has used high incentives over the past year-and-a-half to boost its U.S. sales and market share. But in four of the last five months, GM has lost U.S. market share, year-over-year, and the automaker is expected to post another drop in market share in February.

Ford Motor Co. spokesman Jim Cain said the company will study GM's new program and come out with its own incentive program shortly. "We'll come out with a program to keep the momentum going, and General Motors can look elsewhere for its market share gains," he said.

GM Chief Financial Officer John Devine said earlier this week that industry-wide vehicle sales are expected to drop in February to a seasonally-adjusted annual rate of 16 million vehicles, including some medium- and heavy-duty trucks. That led some analysts to cut their sales estimates for the month.

PRODUCTION CUTS EXPECTED

A snowstorm which blanketed much of the U.S. East Coast over the Presidents Day weekend, typically a somewhat strong sales period for the industry, also hurt February sales, analysts said.

JP Morgan analyst David Bradley said in a research report on Friday that GM and other automakers are likely to start cutting back car and truck production, rather than boost incentives further, to decrease their inventories of unsold cars and trucks.

GM has been able to offset the high costs of its incentives by its lower production costs, productivity gains and improved warranty expenses, analysts said. But GM's rising costs for its underfunded pension plan, and rising healthcare costs, is making it difficult for GM to offset the escalating costs of its incentives, the analysts said.

On Thursday, GM said it would halt production of its Saturn Ion small car and L Series mid-size for two weeks in March to cut inventories. Ford Motor Co. said it would halt production at several of its plants in North America next month.

But the sales race has also hurt results for GM's rivals. Earlier in February, the Chrysler arm of DaimlerChrysler AG posted a small fourth quarter profit of 77 million euros, after its marketing costs climbed to 24 percent of revenues from 16.3 percent in the prior quarter.

GM's new incentives run through March 31, and coincide with a previously-announced "lease buyback" offer. GM said in January it would waive up to five months of remaining lease payments to its current car and truck owners if they opt for a new vehicle.