GM and Ford discount war continues

DETROIT August 1, 2005; Poornima Gupta writing for Reuters reported that General Motors Corp. and Ford Motor Co. on Monday said they were cutting sticker prices and adding features on many cars and trucks in new marketing programs aimed at boosting U.S. sales.

The companies, in fierce competition with Japanese car makers, are hoping to lower their spending on buyer incentives and enhance their vehicles' resale values.

Ford also extended through Sept. 6 its incentive program reducing customer prices to employee-discount levels and expanded it to include some 2006 model-year pickup trucks and sport utility vehicles.

DaimlerChrysler's Chrysler division is also extending its program lowering prices to employee-discount levels, sources familiar with the plan told Reuters.

The moves to cut sticker prices came after Toyota Motor Corp., which has been relentlessly gaining U.S. market share, said last week that it was raising U.S. prices slightly on some 2006 model-year vehicles.

Deep discounting and high costs contributed to big losses in GM's and Ford's North American automotive operations in the second quarter.

GM, which has led Detroit's profit-draining price war for nearly four years, said its new "Total Value Promise" strategy is aimed at weaning car buyers away from big rebates by offering 2006 model-year prices that are closer to final transaction prices and by highlighting the value and quality of its vehicles.

Company officials said on a conference call the world's largest automaker will continue to use incentives in a targeted way because of the intensively competitive automotive market.

RESALE VALUE

Analyst Maryann Keller said cutting sticker prices was important because a vehicle's depreciation, or what it is worth for resale after three years, is often calculated by starting with the original sticker price, also known as manufacturer's suggested retail price.

By cutting sticker prices, GM and Ford can make the residual values of their cars begin to look a lot more like those of Japanese cars, Keller said.

"It sounds very rational. Whether they can execute it I think is going to be another issue," she said.

Sticker prices are especially important among the growing number of car buyers who shop on the Internet.

The new GM promotion, which replaces its popular employee-discount program, reduces sticker prices on about 30 of its 76 models by a range of a few hundred dollars to thousands of dollars. For example, the price of GM's best-selling Silverado Crew cab pickup truck has been cut by $3,055.

GM also said it has extended its bumper-to-bumper limited warranty on all Hummer and Buick brand vehicles to four years or 50,000 miles.

Ford quickly matched GM's strategy and slashed prices. The sticker price on its slow-selling Mercury Monterey minivan, for instance, was cut by as much as $6,340.

Ford also said it is expanding its employee-discount plan, dubbed the "Ford Family Plan," to include the 2006 model-year Escape, Expedition, Mariner and Navigator SUVs, Super Duty pickup trucks, and Econoline vans.

Both GM and Ford, which are fighting to regain U.S. market share from Asian rivals, have been hit hard by this year's dramatic slowdown in sales of mid- and full-sized sport utility vehicles, their most profitable models.

GM's U.S. sales jumped 41 percent in June because of its employee-pricing discount plan, touted by industry observers as one of the most successful consumer-incentive programs in automotive history. Ford and DaimlerChrysler's Chrysler division matched the discounts in July after GM extended its employee-pricing program through Aug. 1.

But analysts said there could be a "payback" effect when the discount program ends. Exceptionally strong sales in any one month can weigh on sales of mass market brands like Chevrolet, Dodge and Ford later on.