Price Wars Coming for GM (NYSE:GM), Toyota (NYSE:TM) and Ford (NYSE:F)?

In spite of the gushing over the auto sector from some corners of financial media, it appears the revelation of General Motors (NYSE:GM) introducing incentives to gain market share could be the first shot in a price war between automakers, including Toyota (NYSE:TM) and Ford (NYSE:F), and probably others.

Barclays says, "US light vehicles sales began 2011 at a solid 12.6mn seasonally-adjusted-annual rate (SAAR) in January, up slightly versus the 12.5mn in December, and well ahead of the 10.7mm rate achieved in January 2010. However, GM's (NYSE: GM) use of "targeted" incentives may mark, in our view, a dangerous first salvo in a heretofore quiet pricing front. Furthermore, Toyota (NYSE: TM) indicated it will offer market leading incentives in hopes of recapturing share lost as a result of its high profile recalls in 2010. Both moves risk sparking a broader price war -- in which event we would see the only net winners being suppliers (on inflated volumes) and consumers.

"Incentives appear effective at moving retail share - but raise the risk of price wars spreading. GM's retail sales gain of 36% (on a core brand basis only) outpaced Ford's (NYSE: F) January retail sales increase of 27% y-o-y and an estimated 25-30% increase in overall industry sales to retail customers, as GM apparently boosted incentives on a tactical basis ($500 per vehicle vs. Dec. 2010, per Edmunds) while other competitors reduced incentives (down 4% at Chrysler and 13% at Ford)..."

GM was trading at $35.72, down $0.73, or 2.00 percent, as of 3:29 PM EST. Ford was trading at $15.49, down $0.41. or 2.61 percent. Toyota was trading at $84.89, up $1.60, or 1.92 percent.