Retail Sales Fall 1.1 Percent in June

Auto Sector Contributed to Drop as Carmakers Reduced Incentives

U.S. retail sales fell sharply last month, dragged down largely by automobile sales that plunged as major automakers tried unsuccessfully to curb incentives.

Overall retail sales dropped 1.1 percent in June, the biggest dive in 16 months, following a 1.4 percent gain in May, the Commerce Department reported yesterday.

Even after excluding autos, retail sales fell 0.2 percent last month after rising 0.9 percent the previous month, the report showed, providing another sign that the U.S. economy has cooled slightly in recent months amid rising prices and interest rates, analysts said.

"Consumers are suddenly discovering they have less money in their pockets, and they are wary," said Kurt Barnard, president of Barnard's Retail Consulting Group. "That is not likely to change anytime soon."

Auto sales plummeted 4.3 percent, as several U.S. automakers trimmed the big cash and financing incentives that had successfully spurred sales in recent years. Buyers balked at the higher prices, the report showed.

General Motors Corp., whose sales account for 27 percent of the U.S. car market, reduced incentives by an average of $300 per vehicle in June, from about $4,300 to $4,000, according to Autodata Corp., an industry consulting firm. The carmaker's sales tumbled 15 percent for the month.

"Consumers expect there to be incentives, so when there aren't, they will not buy a car," said David Lucas, vice president at Autodata.

John Smith, GM's vice president of North America sales, called the figures "weaker than we expected." At Ford Motor Co., whose brands include Volvo and Land Rover, sales fell 8 percent in June from June 2003, though the company did not lower incentives.

To boost sales, GM and Ford raised incentives in July. Ford raised its highest incentives from $4,000 to $5,000. GM said it increased incentives on 2004 trucks and sport-utility vehicles to $5,000, from $4,000. Both are offering no-interest loans.

The higher incentives could not come soon enough for Vincent A. Sheehy, president of Sheehy Auto Stores, which owns 12 dealerships in Maryland and Virginia. With incentives cut, sales of domestic autos on Sheehy's lots fell 10 percent in June.