GM (GM), Ford (F) and Market Share or Earnings

General Motors (NYSE:GM) has already reneged on their promise to shareholders that they wouldn't rely upon incentives as the way to grow, and now they're the leading company for offering them, far above their nearest competitor. Ford (NYSE:F) still holds its ground in not going in that direction. Yet!

The auto giant said they're now going to offer free financing on some of their 2011 vehicles to keep their recent sales momentum going. That creates problems of course, as they may continue to gain market share, but at the price of significantly lower margins and earnings.

How competitors will respond if GM continues to grow market share is what's the most important in this. If Ford and others continue to keep costs under control until the next earnings period, they could reap the benefits of stronger margins and earnings than General Motors, who would then have to answer for its strategy to shareholders.

Ford has said they aren't going to use cutting costs as a way to generate sales, and so we'll see if they can maintain that discipline over time, or panic and offer more incentives to drive sales.

Toyota (NYSE:TM) and Honda (NYSE:HMC) were among the top three ranked from Consumer Report, and Ford was the top U.S. company, coming in fifth place. If they can use that as a basis for pushing sales it would be better than incentives, although media reports concerning the high number of recalls at Toyota and Ford recently has done some damage to them.

The bottom line appears to be the auto industry should attempt to hold the line on incentives for the next couple of months, let GM get their media coverage on sales, and then wait for the earnings report which could be devastating to them, even if they gain a couple of percentage points of share.

Mounting commodity prices should pull them back significantly, and then auto companies will compete on quality and not treat their vehicles as a commodity.