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GM, Ford Expect Lower Sales Despite Uptick in Consumer Confidence

February 27, 2007

Pulling back on discounted sales and supplies to rental companies, General Motors Corp. and Ford Motor Co. said on Tuesday that U.S. sales declined in February as the two companies work toward restructuring their North American operations.

With both saying earlier this year that they planned on reducing fleet sales in 2007, the cuts are part of an effort to move away from low-margin sales as the U.S. automakers recover from billions of dollars in losses and shrinking U.S. market share. Analysts say fleet sales are what allowed the automakers to keep their assembly plants running, but eroded the value of the brands.

GM’s February sales would likely be down 6 to 7 percent, a GM spokesman told Reuters, who added that retail sales would most likely be flat for the month. Ford’s U.S. sales in February would likely slip about 10 to 15 percent, with fleet sales accounting for the majority of the decline, a Ford sales analyst told Reuters.

Sales of Ford vehicles to commercial and government fleets are expected to have dropped 20 percent in February, which includes a 30 percent decline in sales to daily rental companies, a Ford spokesman told Reuters, who added that sales of the company's best-selling F-Series pickup trucks may fall by a double-digit percentage in February.

Automakers will release final sales results for the month on Thursday.

Analysts expect industry-wide sales on an annualized and seasonally adjusted basis to slip to between 16 million and 16.2 million, sharply below the 16.6 million recorded a year ago, according to analysts.

GM expects the U.S. February industry light vehicle sales to come in at an annualized rate of 16 million units, while Ford expects retail sales for the industry also to be down.

Analysts predict that several Asian automakers could also realize an uptick in inventories, which could be a bigger sign that industry sales are slowing.

A bright spot could be a recent report from the New York-based Conference Board, which reported that consumer confidence hit a five-and-a-half-year high amid optimism that the nation’s economy is creating enough jobs.

According to the Conference Board, its Consumer Confidence Index rose to 112.5, up from a revised 110.2 in January. Analysts had expected the reading to be 109.

The February index was the highest since August 2001, when the reading was 114, indicating that consumers will continue to fuel the nation's economic growth in the near future.

In a statement, Lynn Franco, director of The Conference Board Consumer Research Center, said that "improving present-day business conditions and an easing in the proportion of consumers claiming jobs are hard to get, have combined to lift consumers' spirits."

"All in all, it appears that the pace of economic growth exhibited in the final months of 2006 has carried over into early 2007 and may have even gained a little momentum," she added.

The Present Situation Index, which measures how shoppers feel now about economic conditions, increased to 139.0 from 133.9. The Expectations Index, which measures consumers' outlook in the next six months, edged up slightly to 94.8 from 94.4 last month.

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