DETROIT: America's top three carmakers predict a further softening of the market before the year end, raising the likelihood they will cut production or offer profit-draining cash sweeteners to prevent gridlock on dealer lots.

According to Autodata, industry sales to date this year are down 3.2% from a year ago.

Housing problems, high gasoline prices and credit-market turmoil, warns Ford Motor Company ceo Alan Mulally, "might be spreading, and it might be a bigger problem than we all initially thought."

He signaled a preference to cut production as an alternative to deeper incentives like no-interest financing and other discounts, arguing they "artificially" increase demand and undermine profitability long term.

Addressing an analysts' meeting Wednesday General Motors' sales-analysis manager Paul Ballew reiterated the company won't persist in offering bargain-basement deals on all of its vehicles in order to drive demand.

But GM's vp North American Sales, Service and Marketing Mark LaNeve was realistic: "The consumer's hurting. We can't be in a position where we're not competitive. If we're in a soft [auto] market, we're going to have to lower price."

Even the seemingly unstoppable Toyota has significantly lowered its expectation for 2007, compared with its initial forecast. But Jim Lentz, evp of the Japanese giant's US sales arm, is optimistic about industry prospects for 2008, predicting steady growth into the next decade.

He believes that US auto sales across the board could grow by 100,000 vehicles or more a year, eventually reaching 18 million "sometime in the late 2010s."

The industry's hope is that Lenz is not just "whistling a happy tune" in the dark.

Data sourced from Wall Street Journal Online. additional content by WARC staff