Reuters
March 3, 2008 - 12:00 a.m. EST

DETROIT, March 2 (Reuters) - When major automakers release February sales results on Monday, analysts expect to see double-digit declines from Detroit, more fallout from a slumping economy on an already battered industrial sector.

Some see the risk for results weak enough to rock the consensus that this year's expected decline in U.S. auto sales will remain limited despite the pressure from a collapsing housing market, tighter credit and rising gas prices.

"Things are getting ugly from a sales perspective," said IRN Inc analyst Erich Merkle, who sees a chance the industry's annualized sales drops to near 14.9 million vehicles, weaker than major automakers have forecast for 2008 as a whole.

"I think that will rattle a lot of people," Merkle said.

Overall, analysts expect February U.S. car and light truck sales to drop by between 6 percent and 10 percent in February from the same month a year earlier after adjusting for an additional sales day last month.

The auto sales data represent one of the first snapshots of overall U.S. consumer demand, and the projected weakness could provide more evidence for those in industry who believe the U.S. economy has already slipped into what will be later recognized as outright recession.

General Motors Corp (GM.N: Quote, Profile, Research), Ford Motor Co (F.N: Quote, Profile, Research) and Chrysler LLC are expected to be hardest hit in February. The Detroit Three stand to lose market share in a declining market and could be forced to rein in production to keep inventories from ballooning.

"The difficult environment for auto sales continues to take a much heavier toll on the Big Three," Lehman Brothers analyst Brian Johnson said in a note. "While we expect the industry's selling rate to be down overall by 10 percent in February, we expect the domestic manufacturers to post a 15 percent drop."

GM sales are expected to be down by between 10 percent and 13 percent; Ford down by 10 percent to 18 percent, and Chrysler sales off by 10 percent to 20 percent, based on forecasts from four analysts.

A survey of U.S. auto dealers conducted by brokerage UBS for February also found 71 percent reporting declining showroom traffic. "This continues the negative trend that has evolved over the last six months," UBS analyst Rob Hinchliffe said.

U.S. auto sales fell 2.5 percent in 2007 to 16.15 million vehicles, the second consecutive decline and weakest tally in nearly a decade. Most 2008 forecasts assume that a further drop will be limited, taking total sales to near 15.5 million.

On Friday, Chrysler Vice Chairman Jim Press, who joined the automaker from Toyota Motor Corp (7203.T: Quote, Profile, Research) last year, warned that any hopes for a second-half recovery in auto sales represented "wishful thinking."

"This year is going to be a pretty severe year," he told reporters.

A BUYER'S MARKET

Even the most cautiously optimistic forecast for February sales hinges on the view that automakers have been relatively successful with winning showroom sales by cutting special deals for customers on pricing and financing.

Such incentive spending -- including zero-percent finance offers and cash-back rebates -- cuts into margins and represents a kind of last resort for an industry that has seen demand fall away faster than it can cut production.

The incentive offers available for car shoppers in February included cash rebates of $5,000 or more on Ford's F-150 pickup trucks, the best-selling vehicles in the U.S. market.

Chrysler also offered shoppers $5,000 cash back on its competing Dodge Ram truck, while GM, which has a new pickup truck model, held the line with $3,250 in rebates on the Chevrolet Silverado, according to data compiled by trade journal Automotive News.

There were signs that even Toyota and Honda Motor Co (7267.T: Quote, Profile, Research), who normally trail Detroit by a wide margin in discounting, got more aggressive on pricing in February.

Toyota offered rebates of up to $5,000 on its Tundra and Sequoia SUVs. Toyota now ranks No. 2 by sales in the United States, ahead of Ford in the single-largest and most-lucrative market for new vehicles.

Automakers do not typically disclose the value of their incentive programs, which are tracked by analysts as a sign of the pressure on the companies to move unsold inventory. (Editing by Braden Reddall)