By Justin Hyde
DETROIT, Oct 25 (Reuters) - American consumers were snapping up new cars and trucks at a record pace one year ago, lured by a novel offer of no-interest loans.
Today, the novelty has worn off and industry experts say October's vehicle sales could be the slowest so far this year.
The average analyst forecast for U.S. auto sales in October calls for a seasonally adjusted annual sales rate of 15.8 million, well off last year's all-time record of 21 million and down about 5 percent from September.
And when automakers report their monthly sales on Nov. 1, they will be scoured by Wall Street for signs the consumer fatigue driving down sales at other retailers may be finally catching up with auto sales, which account for roughly one- fifth of all U.S. retail sales.
"October does look softer and what we don't know is what that means yet, if it's an aberration, a seasonal thing or the start of a real softening," Ford Chairman and Chief Executive Bill Ford Jr. said earlier this week. "From where I sit it's too early to call."
U.S. consumer sentiment has fallen for five straight months and hit a nine-year low in October. But consumer spending has remained healthy in part through lower interest rates and the lowest mortgage rates in decades.
Automakers have been able to keep more than their share of buyers coming into showrooms through a growing array of incentives, including interest-free loans, cash rebates and creative payment plans. The deals averaged about $1,800 per vehicle across the industry in September, with Detroit's Big Three averaging more than $2,100 per vehicle.
Incentives declined in September from a peak in July and August, when sales hit 18.7 million vehicles. That burst of sales may have pulled forward sales from September and October, but analysts suspect automakers will fight any serious softening in the market with more deals.
"History suggests incentives always go up when demand and capacity utilization fall because of the industry's high fixed costs," said Goldman Sachs analyst Gary Lapidus in a research note. "But a modest increase is not likely to move volume although it will certainly increase costs."
SPEED UP, SLOW DOWN
Incentives may have helped sales, but they put a dent in Detroit's third-quarter profits. General Motors Corp. and DaimlerChrysler AG's Chrysler arm saw their revenue per vehicle fall 2 percent to 3 percent.
Ford Motor Co. was able to raise the amount of money it brought in per vehicle, but unlike GM and Chrysler, it had a net loss on its North American auto business. Bill Ford Jr. said this week his company was speeding up its cost cutting.
But Standard & Poor's cut Ford's credit ratings on Friday to two notches above "junk" level, saying the gains in Ford's restructuring plan could be offset by weaker sales, lower market share and "industrywide intensification of price deterioration, partly resulting from aggressiveness by General Motors Corp."
While GM and Ford have been aggressive with incentives and production -- both have been running overtime at several North American factories this month -- Chrysler has been more cautious. It's fourth-quarter production estimate is about 5 percent below last year's output and the company will idle four plants next week to reduce inventories.
Company officials have said that, while they will stay competitive, they would rather keep incentives just below those of their competitors and try to sell their vehicles on their merits.
"I think all the manufacturers in the U.S. will rethink and restructure the incentive programs one day because they are too ... deteriorating (to) the bottom line," DaimlerChrysler Chief Financial Officer Manfred Gentz said earlier this week. "We have to be afraid the pull effect through incentives doesn't work anymore."