With inventories stacking up and nowhere to put production (See Unsold Car Images From Around The World), price wars on autos were only a matter of time. That time has arrived, and GM to cut prices to lure back US buyers.

General Motors is preparing a fresh barrage of discounts and other promotions to coax Americans into buying more cars after an upcoming US government decision on further financial aid to the Detroit motor industry.

The incentives will be designed to counter a slump in sales and GM’s market share, amid signs on both sides of the Atlantic that its financial woes are beginning to drive away customers.

GM’s share of US light vehicle sales sank to 18.3 per cent last month from 19.5 per cent in January and an average of 22.6 per cent in the final two months of 2008. The company’s viability plan is based on a 20 per cent share.

GM’s viability plan sounds much like its old plan: sell cars below cost to meet production goals.

Toyota May Cut Price of Prius Hybrid to Match Honda’s Insight

Unfortunately for GM, the competition is not exactly standing still as Toyota May Cut Price of Prius Hybrid to Match Honda’s Insight.

Toyota Motor Corp., the world’s largest automaker, may cut the price of its Prius gasoline- electric hybrid car in Japan to match Honda Motor Co.’s Insight.

Toyota spokesman Yuta Kaga declined to confirm or deny a Nikkei newspaper report today that said the starting price of the Prius will be cut to 1.89 million yen ($19,250) from 2.33 million yen. The Insight hybrid, which went on sale in Japan last month, starts at 1.89 million yen.

Toyota later this year plans to introduce a revamped Prius with higher mileage and more power than the current model and the Insight. Both automakers are betting on fuel-efficient models as governments worldwide tighten emission standards.

The Prius accounted for half of all gasoline-electric models sold in the U.S., the world’s biggest auto market, last year. The price reduction would apply to the current Prius model.

Let’s do the math.
2.33 – 1.89 = .44.
.44 ÷ 2.33 = 18.9%

Thus, Toyota is rumored to cut the price of the Prius a whopping 18.9%! OK GM, Honda, Mazda, it’s your move.

Stores, food makers compete on retail prices

It’s not just auto manufactures competing on price. Please consider Stores, food makers compete on retail prices.

Retailers, who begrudgingly went along when food makers pushed up prices to recoup record-high costs, are flexing newfound muscle and demanding price cuts to match the recent steep retreat in ingredient costs.

Food makers are resisting, saying the uncertain economy and volatile costs make price cuts unwise. But retailers aren’t backing down.

Consumers — who responded to the higher prices by favoring grocers’ in-house products over national brands and by shopping more at discounters — may end up with fewer choices all around.

“We don’t have to carry three brands,” Costco Wholesale Corp.’s Chief Financial Officer Richard Galanti told investors earlier this month. “We can choose between brands that are going to be more aggressive, that help us help our members.”

Costco has been lowering its prices, Galanti said, and is prepared to sacrifice profit margins and cut national brands that won’t negotiate on pricing — if that’s what it takes to drive sales.

“We are not the only ones out there pressuring manufacturers,” he said.

Steven Burd, president of grocery chain Safeway Inc., recently told investors that it has gotten some vendors to roll back their prices. Like many retailers, it is finding its new strength in its in-house brands, including Safeway Select, O organics and Primo Taglio deli products.

“We’re going to chew them up on corporate brands,” Burd said of food makers that don’t lower prices. “And we’re just going to keep driving corporate brands.”

Some 64 percent of shoppers in 2008 said they often or always buy a store brand rather than a national one, according to the Food Marketing Institute, an industry trade group. That’s up from 59 percent the prior year.

Kroger Co., owner of Ralphs, Fred Meyer, Food 4 Less and other chains in 31 states, saw sales of its in-house brands hit a record 27 percent of total sales in the most recent quarter.

Price wars: It’s a good thing. And for those wanting to buy a car, my advice remains to wait. This is just the start of inventory clearing price wars.

Mike “Mish” Shedlock
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