Red Tag Madness

Reuters is reporting California auto sales seen slowing through 2007.

Auto sales in California, the largest U.S. market for cars and trucks, will slow for the rest of this year and next, a forecast released on Thursday by the state's auto dealers association said. The report commissioned by the California Motor Car Dealers association forecast a 2.5 percent decline in 2007 sales.

"The reasons for the sliding market are plentiful, including slower economic growth, rising interest rates, elevated consumer debt levels and the slowdown in the housing market," the report prepared by consultancy Auto Outlook said. The California market is seen as a bellwether for national auto sales, which were down about 3 percent over the first 10 months of this year from the same period a year earlier.

In one standout trend, the California data showed the shift away from Detroit-based automakers and toward Toyota Motor Corp. has been more pronounced in the state than in the national market this year. Toyota's U.S. sales are up 12 percent so far this year, taking the Japanese automaker's share of the overall light vehicle market to 15.2 percent from 12.2 percent a year ago.

But in California, the most populous and wealthiest U.S. state, Toyota gained 3.7 percentage points of market share through the first three quarters, the study said.
By contrast, the traditional Big Three lost 4.7 market share points in California, the study said. On a combined basis, the Detroit automakers represented just 41.2 percent of auto sales in California through the first nine months, well below their 54.1 percent share nationally.

In PPI, Gold, and Dr. Copper I noted the following auto sector highlights.

Prices for light motor trucks fell 9.7 percent following a 3.5-percent gain in September. For 12 months ending October 2006 the index for light motor trucks fell 12.4%

Passenger car prices fell 2.3 percent in October compared with a 2.8-percent advance in September. For 12 months ending October 2006, the index for passenger cars decreased 3.2 percent.

Red Tag Event

GM has been trying to shy away from incentives, but it appears that rising inventories have forced GM's hand. The Detroit Free Press is reporting GM to launch clearance incentives.

General Motors Corp. will begin an incentive program this weekend to help clear inventories of 2006 models, three dealers told Bloomberg News.

The “Red Tag” event might cut prices on many ’06 GM vehicles and runs Nov. 18-Jan. 2, Manpreet Wadan sales manager of Bill Pierre Chevrolet in Seattle, told Bloomberg. GM will also allow dealers to discount many 2007 vehicles by $500 or more, he said.

Wadan said the Corvette, Pontiac Solstice, GMC Sierra pickup, Saturn Sky and all Hummer, Cadillac and Saab models.

Phil Vilar, a sales manager for San Diego-based Seaside Buick Pontiac GMC, told Bloomberg some of the details haven’t been decided, such as the full range of models and the distribution of discounts.

John McDonald, a GM spokesman, declined to comment on the incentives.

Dealer Comments

GM might not be commenting but a GM dealer on the Motley FOOL who posts under the name JediKnight is. This is what Jedi has to say:

In case any board members or lurkers are going to buy a GM car between now and Jan 2...

As part of the "Red Tag" sale, GM has given each dealer an allotment of "coupons", size of allotment is based on the size of dealer's inventory. The dealer has the option of using anywhere from $250, up to $2,000 per unit and it's NOT a rebate, it's dealer-cash meaning he doesn't have to tell you about it.

Yes, coupons are limited so if a dealer tells you that your particular unit of choice "doesn't" qualify for the money, he may be telling the truth. By tonight, all dealers must PRE-DETERMINE which specific units to use how much money on.

It's ridiculous. So if I 'roll the dice' and put $2000 on say, a 2007 white Denali and quote you a price, but now you want the black one ... I gotta raise my price to you. Isn't that pleasant for both sides?

I'm passing this along so that IF you go to your local dealer, you know about it.

Sure you'll know dealer cost, etc via your research, but ask the dealer to "show you which units he put the red-tag cash on ... he has a list WITH VIN numbers".

Mostly dealers will use them towards remaining 06's but you never know.

Asking this question could save you anywhere from $250 to $2000.

Thanks Jedi!

Once again GM is turning to the only method it knows to reduce inventories and move cars, and that of course is incentives.

The economy is clearly slowing and if there was any doubts then the October housing start numbers should put an end to that doubt. Look for incentives of all kinds to dramatically increase from both GM and Ford in 2007 as the consumer led recession of 2007 kicks in full force.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/