NEW YORK (TheStreet) -- General Motors (GM) shares have fallen 15.8% from the highs on fears about a price war with Ford (F) and others. After a strong recovery in 2013 for the auto makers, the recent data points haven't been favorable for the group on fears of higher incentives, rising inventory levels and a fragile consumer.
Ford lowered its 2014 earnings estimates in December, which was then was followed by GM reducing its earnings guidance at the Detroit Auto Show in January. Over the weekend there were articles suggesting all-out price wars in the industry with GM offering as much as $7,000 off of its entire line and Ford also discounting heavily by as much as $3,000 to $4,000 per vehicle. The weather is certainly playing havoc on sales but just how much of this is weather vs. demand deceleration remains unclear.
It certainly feels like just about every day we get an earnings warning from a consumer company like Kohl's (KSS), Coach (COH), Wal-Mart (WMT), etc. Even McDonald's (MCD) January comp in the US fell more than expected at 3.3%. A lot of these stories are company specific, but it's clear the consumer is choosier - having to decide between refurnishing his/her house, buying a car, or spending on clothing.
With wage growth flat over the last few years - there are choices that have to be made. One or the other. I think the replacement cycle story in autos remains compelling, with the average age of the US car now at 11 years old. At the same time banks' standards are looser for auto loans and used vehicle prices have remained stubbornly high. All of this bears watching and the rise in inventories will be key going forward. As of now they are still under control (even though January and February have seen increases from the average 64 days seen over the last year).
The reality is - there are incentives being given out right now, but it's usually pretty typical for the industry to do so around the President's Day Holiday - usually discounts are around 10% to drive store traffic during this seasonally slower period. And, yes, GM is offering $7,000 discounts on certain vehicles but it's not "all" of its products and many are on the older GMC line.