Key dealer says GM needs to step up incentives

DETROIT (Reuters) - General Motors Corp GM.N needs to increase incentives on slow-selling trucks to clear inventory at a time when customers are struggling to trade in rapidly depreciating large vehicles, a major U.S. auto dealer said on Tuesday.

Group 1 Automotive Inc (GPI.N) Chief Executive Earl Hesterberg said in an interview his dealership group -- the fourth-largest in the United States by sales volume -- had been forced to curtail truck orders sharply to run down an inventory that shot higher in the past quarter.

He said Group 1's inventory of light trucks ballooned to 89 days supply in the first quarter, up 21 days from a year earlier amid declining sales for trucks and SUVs and rising gas prices.

By contrast, the dealer group's inventory of unsold cars rose just slightly to 57 days, reflecting a build-up from car makers like Toyota Motor Co (7203.T) where stock had been lean before the first-quarter drop in industry-wide sales, he said.

"The truck situation needs to be rectified," Hesterberg told Reuters. "We need to order less or to see a lot of trucks sell quickly -- and I don't think there is any sign of the market turning."

Hesterberg said Ford Motor Co (F.N) had become more aggressive than it had been a year ago in offering incentives to support sales of its market-leading F-series pickup trucks.

"They've certainly been aggressive, all things considered, so far this year," he said. "They've been the best of the Big Three."

Ford represented almost 12 percent of Group 1's first-quarter sales. GM accounted for almost 6 percent.

The Houston-based company, which operates more than 100 auto dealerships, draws more than 40 percent of its sales from Texas and Oklahoma, key markets for trucks and work vehicles.

TRADE-IN STICKER SHOCK

Hesterberg said GM's trucks like the Chevrolet Silverado pickup continued to be well received by customers. But a sharp drop in resale values for trucks in recent months meant dealers could no longer make trade-ins work in many cases.

Many truck shoppers are surprised to find they owe more in loans on their existing vehicle than it is worth in the secondary market, he said.

Amid higher fuel prices and a slumping housing market that has depressed demand for work trucks in the construction industry, the value of used trucks and SUVs has been declining steadily since late last year, Hesterberg said.

"Customers are absolutely stunned," he said. "And if you have a diesel truck -- and those are work trucks -- it's even worse."

Hesterberg had criticized Ford management a year ago for not "defending" sales of its F-series pickups, which have long ranked as the best-selling vehicles in the United States.

Analysts track sales incentives and inventory numbers as indicators of how much pressure major automakers face to sacrifice profit margins to clear stock.

GM, the No. 1 U.S. automaker, has said it will not resort to deep discounting in the current slump but will look to cut production of slow-selling vehicles instead.

A GM spokesman declined to comment on Hesterberg's remarks. GM said on Monday it would cut 138,000 light trucks from its planned output this year in response to weak demand.

GM, which reports first-quarter financial results on Wednesday, also shut or partly idled almost 30 plants in the past quarter because of a strike at supplier American Axle & Manufacturing Holdings Inc (AXL.N) that has hobbled production of its trucks and SUVs.

Ford, which surprised analysts by posting a $100 million first-quarter profit, has said it planned to run down its inventory of F-series trucks before launching the new version of the pickups in the third quarter.

(Editing by Braden Reddall)