Zetsche: Incentives will be replaced by new models people WANT to buy

LAS VEGAS January 31, 2004; Tom Brown writing for Reuters reported that profit-gouging consumer incentives, which almost derailed Chrysler's turnaround last year, may be easing up a bit in 2004, the chief executive of the struggling U.S. unit of DaimlerChrysler said on Saturday.

Chrysler CEO and President Dieter Zetsche said incentives, which industry pundits have likened to drug addiction, are unlikely to disappear from the fiercely competitive landscape of the U.S. auto industry.

But in a keynote address to the annual convention of the National Automobile Dealers Association, he said favorable economic conditions and an unprecedented onslaught of new cars and light trucks should undercut the need for hefty cash rebates and cheap loan deals to draw customers into auto dealerships.

"With so much new product coming to your showrooms over the next few years, the time may have finally come for us to put less emphasis on selling 'the deal' and more emphasis on selling the product," Zetsche told a packed audience of dealers at the cavernous Las Vegas convention center late on Saturday.

"Although average incentive levels remain high ... they may have begun to ease a little this year. New and exciting product is also what you might call a natural remedy for high incentives," he said.

"So 2004 just may be the welcome year that the incentive war, in which residual values and margins have been big casualties, begins to wind down and the product war begins in earnest."

Zetsche was referring to what Jim Press, chief operating officer of Toyota Motor Corp.'s U.S. subsidiary, described on Friday as "a thermonuclear product war." It is fueled by analyst expectations that more than 80 percent of the auto industry's U.S. volume will be replaced with new product over the next 36 months.

At Chrysler, which is beginning to see some of the promised synergies from its 1998 link-up with Germany's Daimler-Benz, that translates into nine new vehicles this year and 25 over three years.

"That's a torrid pace for new vehicle launches," Zetsche said in his speech, as he hailed the "virtual tidal wave of new product" set to descend on showrooms across the United States.

Incentive spending in the U.S. auto industry has mushroomed since General Motors Corp. rolled out interest-free loan deals shortly after the Sept. 11, 2001 attacks on the World Trade Center and the Pentagon.

It was largely a failure to keep pace with that spending by GM and crosstown rival Ford Motor Co. that led Chrysler to post a surprising $1.1 billion loss in the second quarter of last year.

Chrysler returned to a marginal profit in the third quarter of last year. But its full-year results, which Zetsche has hinted may have fallen short of a narrow profit target, will not be announced until DaimlerChrysler's annual news conference in Stuttgart on Feb. 19.