New year brings new auto incentives

But a lingering concern is how much the deals are cutting into profits.

©Associated Press
January 7, 2003

DETROIT -- Automakers show no signs of curtailing generous incentives for consumers to buy new vehicles this year, even though the deals have cut into profits and could lead to lower volume later in the year.

Ford Motor Co. announced its latest round of zero-percent financing and cash-rebate offers Monday, three days after General Motors Corp. made its latest sales push.

Dieter Zetsche, chief executive of DaimlerChrysler AG's Chrysler Group, acknowledged Monday that Chrysler has had to adjust its programs at times to remain competitive, but said he dislikes playing follow the leader.

Still, Chrysler is expected to reveal its new incentives today.

"We are not leading this direction, and we will continue to step away from it, step by step, further and further, with each new exciting product," Zetsche said Monday from the North American International Auto Show.

"Of course, we cannot sell cars without incentives, and nobody intends to do that," he said. "The question is the level and the speed of increase."

GM, the world's largest automaker, typically is regarded as the kingpin of incentives, primarily because it started the battle in September 2001 with its "Keep America Rolling" no-interest financing promotion.

GM's aggressive incentives last month contributed heavily to a strong December for U.S. vehicle sales industrywide. The deals also helped the world's No. 1 automaker post a full-year market-share gain for the second straight year, something it hadn't done since 1976. Detroit's Big Three -- GM, Ford and Chrysler -- saw December sales of light vehicles rise 21 percent compared with the same month last year.

But a lingering concern among investors and analysts is how much the deals are cutting into profits and whether they'll lead to soft volume in the coming months because of so-called "pull-ahead" sales -- people buying vehicles now because of incentives, diminishing sales later.

J Ferron, an analyst with PricewaterhouseCoopers, estimates that automakers offered a total of $40-billion in the United States last year on all forms of incentives for new cars and trucks.

"Everyone used to say that the light at the end of the tunnel for incentives was new products," Ferron said. "But we're even seeing incentives on new models. Right now, the light at the end of the tunnel appears to be an oncoming train."

But GM North America President Gary Cowger said Monday the company does only what it needs to remain competitive.

In the latest round, GM announced cash rebates on most 2003 models, but backed off interest-free loans on most sport utility vehicles.

Cowger declined to disclose how much the discounts cost GM each month. He also said he saw no exit point anytime soon.

"You have to stay on top of it," Cowger said. "What we've said is we'll remain competitive."

And, he added, in months when GM has tried to back off the deals, "we felt it."

Through February, Ford is offering zero-percent financing for up to 60 months on the Ford Taurus, Windstar and Ranger, or $3,000 cash, among other deals.

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