Ford, GM, Chrysler Match Low Production, Low Demand

The U.S. auto industry is suffering the opposite of the "Field of Dreams" phenomenon, where the mysterious voice says, "If you build it, they will come."

GM, Ford and Chrysler, plus the biggest Japanese brands with North American production, have all cut back on production in the first quarter. That's truly the last resort for a car company, which makes its money in direct proportion to production.

U.S. auto sales in January were only 656,976, down 37 percent from the year-ago month, according to AutoData Corp.

The car companies keep cutting production and waiting for demand to catch up, but demand isn't catching up. The Detroit Big Three aren't building them, and people aren't coming.

Not only that, some auto executives say the industry is at or near the point where tried-and-true discounting no longer helps, and hiking incentives is simply throwing good money after bad.

Ken Czubay, Ford vice president, sales and marketing, said in a Feb. 3 conference call that Ford will try to avoid throwing incentives at the problem.

"There are two ways you can go. You can try and sell your way out of the situation, or you can try to reduce production to match reduced demand," he said. Ford is trying the latter strategy.

"It seems like rising incentives are not going to happen," despite falling sales, Czubay said. "We're glad to see that rationalization," he said.

According to Edmunds.com, the average incentive in the U.S. market in January was $2,714. That was down about $150 from December. Nevertheless, it was about $300 higher than the year-ago month.

Part of the decline in January versus December was related to the fact that Ford is finished using incentives to help sell out its previous-generation F-150 truck. The F-150 was redesigned for the 2009 model year.

GM is pushing a similar strategy, sharply reducing North American production in the first quarter to around 380,000 cars and trucks. That's less than half the year-ago quarter. At the same time, GM has cut back on incentives, according to Mark LaNeve, vice president, GM North America vehicle sales, service and marketing.

According to Edmunds.com, GM's average incentive in January was $2,992, down $562 from December 2008, and down $330 from the year-ago month.

However, GM is having a hard time staying away from splashy incentive programs. LaNeve said that for a Presidents Day promotion, GM will offer zero-interest financing up to 60 months, or 1.9-percent loans for 72 months.

Judging by the production schedule, GM isn't worried that the sale could create product shortages by creating too much demand.

Source for Chart: GM data, BNET chart