Inventory overload keeps prices low

A fourth straight monthly drop in new US vehicle prices in November underscores the trouble automakers face paring bloated inventories, a problem likely to keep prices down through 2007.

New auto and light truck prices fell 0.7 per cent last month, the biggest drop since August of last year, according to Labor Department data on Friday that reflected an aggressive effort by automakers to clear out 2006 models.

Part of that effort has been reliance on hefty sales incentives to lure buyers. According to Edmonds.com, incentives averaged $US2,539 ($A3,244) a vehicle last month at General Motors, $US3,226 ($A4,122) a vehicle at Ford, and $US4,224 ($A5,397) at Chrysler.

But even with aggressive deal-making, year-to-date sales at the US Big Three automakers were down in November and production is being cut back from already reduced levels.

Early this month, Ford said it was reducing fourth-quarter production further and that first-quarter production would be cut as well. GM also announced it would hold first-quarter output below the year-earlier level.

Analysts say still bloated inventories, a glut of global production capacity and a lack of demand from consumers mean more price declines likely lie ahead.

"Given that globally the capacity for automobile production is still much larger than underlying demand, one can continue to expect underlying moderation in the pricing structures," said Thomas Deusterberg, president of the Manufacturers Alliance/MAPI, a nonprofit business group

The drop in vehicle costs last month helped restrain overall consumer prices.

The Labor Department said its consumer prices held steady last month, both overall and excluding volatile food and energy prices.

Without the vehicle price drop, the core consumer price index likely would have moved up 0.1 per cent.

Over the past year, vehicle prices were down 0.9 percent, the biggest year-over-year drop since August 2004.

Still, that has not been enough to spur the sales the ailing auto sector needs.

"There is a ways to go in terms of aligning demand," Deusterberg said.

Separate data from the Federal Reserve on Friday showed auto production rebounded 3.7 per cent in November, offsetting a 3.4 per cent decline in October. But motor vehicle and parts output was down 2.4 per cent from a year ago.

Auto industry analysts do not expect to see a quick turnaround.

Forecasting group CSM Worldwide said earlier this week it expected US auto sales to slip to a nine-year low of 16.2 million units in 2007, with Detroit-based automakers losing ground to Asian rivals.

"Depleted pent-up demand is at the root of our forecast," CSM's global sales analyst Joseph Barker said in a statement when the forecast was released.

Source: AAP 2006