DaimlerChrysler Emphasizes Warranty - Not Rebates
September 6, 2002 Bloomberg News reported that DaimlerChrysler AG's decision to offer a longer engine warranty instead of higher discounts will significantly lower the percentage of sales spent on marketing for the rest of the year, an executive said.
The company's Chrysler Group will try to keep cash rebates "a few hundred dollars" less than larger rival General Motors Corp. the rest of the year and keep promoting a 7-year, 70,000-mile warranty it started in July, said James Schroer, executive vice president of sales marketing.
"The warranty might work part of the time but it's hard to make it the driving reason people buy cars," said Art Spinella, president of CNW Marketing Research, which tracks consumer attitudes and automaker incentive costs for the industry. "They need appealing products."
Chrysler's marketing costs were 19.6 percent of revenue in the second quarter, the highest since 2001's first quarter. The costs should be in the range of 16 percent, Schroer said. The U.S. unit is trying to return to profitability after losing $1.9 billion last year. No-interest loans and the warranty helped its sales rise 24 percent last month, he said.
Rivals such as GM, Ford Motor Co. and Toyota Motor Corp. have said their models are more reliable and they don't need to follow Chrysler's warranty extension.
Incentives will not go away and Chrysler will remain competitive, Schroer said. The No. 3 U.S. automaker joined GM on Wednesday in offering no-interest loans on most 2003 models. Chrysler is offering a maximum of 3-year, no-interest loans on 2003 models, while GM offers 5-year terms.
Chrysler originally planned a strategy of lower prices and lower incentives for 2002 models, Schroer said. That strategy fell apart when GM added no-interest loans to jumpstart sales after the Sept. 11 attacks. Chrysler had to offer bigger discounts to compete while raising sticker prices to try to protect its profit margin.
The automaker should be able to lower incentives more when new models like the Pacifica station wagon and the Crossfire sports car go on sale next year, Schroer said.