The Wall Street Journal-20080130-GM Expects Car-Price Rise

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GM Expects Car-Price Rise

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Associated Press

U.S. automobile prices could rise significantly in the near future because of industry restructuring and rising raw-materials and regulatory costs, General Motors Corp.'s chief financial officer said.

Fritz Henderson said the industry has less manufacturing capacity than in the past and therefore less pressure to sell vehicles cheaply to move inventory. It also faces higher raw-materials costs, rising technology costs and increased costs from fuel-economy and other government regulations, he said.

While the U.S. market still is competitive, "you could potentially see a significant change from what we've seen in the last eight or 10 years," Mr. Henderson said in a speech to the Automotive Press Association in Detroit.

Mr. Henderson said he didn't know when prices might start to rise, but he said costs already have risen and auto makers are spending a great deal on new technology. GM also has reduced its sales to low- profit fleet buyers such as rental-car companies, he said.

"You're going to see a lot of costs in the car today that's already happened, whether its steel or raw materials or precious metals, and then you combine the technology on top of it, and I think you're going to see pressure," he said. "The question is when does it manifest itself in the market?" he said.

In December, GM raised its prices an average of 1.5%, mainly because of higher raw-materials costs, especially nonferrous metals, steel and oil.

The company has seen increases in its transaction prices, which are much closer to sticker prices than in the past. Mr. Henderson said higher-income customers are buying vehicles with more features. The average sale price for a 2008 Cadillac CTS sedan, for example, is $37,000, up from $29,000 for the same model last year, he said.

GM expects a slower U.S. economy for 2008, but not a recession, because several sectors of the economy are performing well, he said. U.S. exports are growing, and policy makers have moved to cut interest rates and plan an economic-stimulus package, he said.