U.S. Automakers Dramatically Lowed Discounts, Rebates in October; Sales Plummet

DETROIT November 4, 2005; Dee-Ann Durbin writing for the AP reported U.S. automakers lowered discounts and rebates dramatically in October, part of a strategy to focus more on quality and value and less on cash bonuses. But sales plummeted, and analysts wonder if automakers will have the patience to stick with their strategy.

DaimlerChrysler AG's Chrysler Group already has responded to October sales by adding a $1,000 discount to all 2005 and 2006 vehicles. General Motors Corp. and Ford Motor Co. also have quietly introduced new discounts for some models.

GM is offering $1,000 on all remaining 2005 vehicles -- except the Hummer H1 -- through Nov. 13, spokeswoman Deborah Silverman said. Ford is extending a zero-percent financing deal on its 2005 F-150 truck and Explorer, Expedition and Lincoln Navigator sport utility vehicles through the end of November, spokesman Jim Cain said. It also is offering $500 on some 2006 F-150 and Ranger trucks and $1,000 on the 2006 Lincoln LS sedan.

"We've got a consumer out there where the confidence levels have been slipping, and they're concerned about the monthly budget," Gary Dilts, Chrysler's senior vice president of sales, said Tuesday. "We feel the need to put some sort of incentive out there that answers the question, `Why buy now?'"

U.S. automakers had a blowout summer with their employee-discount incentives, which let consumers pay what autoworkers pay. But when the programs ended this fall, GM and Ford said they would lower overall prices and rely less heavily on incentives. Automakers said incentives also make it hard for consumers to figure out the vehicle's actual price, especially when they're shopping on the Internet.

Automakers made good on that promise in October. The average incentive per vehicle last month was $2,204, down nearly 21 percent from last October, Merrill Lynch analyst John Casesa said Thursday in a note to investors. But sales sank 11 percent industrywide.

GM led the major U.S. and Asian automakers in pulling back spending, with a 24 percent decline in incentives over last October, Casesa said. Chrysler had the highest incentives of any major automaker at $3,075 per vehicle; Honda's were the lowest, at $618.

Toyota Motor Corp. was the only major U.S. or Asian automaker to raise its incentives over last October. Casesa said that was fueled by a 58 percent jump in spending on trucks and SUVs, indicating the automaker is nervous about demand for those products.

Casesa predicted low incentives won't last.

"Although the decline is welcome news for an industry that has been inflating volumes at the expense of margins, we expect the respite in spending activity to be short-lived," Casesa said.

Jim Sanfilippo, a senior industry analyst with Bloomfield Hills-based Automotive Marketing Consultants Inc., said new vehicles like the Ford Fusion show U.S. automakers are serious about producing high-quality vehicles at competitive prices. The Fusion starts at $17,145 -- $1,300 less than the Toyota Camry.

Sanfilippo predicts some targeted discounts on certain vehicles, but believes automakers are committed to lowering incentives. He said the employee-discount program taught automakers that consumers like pricing that's easy to understand.

Rebecca Lindland, an auto analyst with Waltham, Mass.-based Global Insight, said GM in particular should keep incentives low through the rest of the year and focus on January, when it will start introducing its new SUVs.

"They should focus on the all-new vehicles instead of trying to suck more life out of 2005," she said.

Lindland said incentives might not even have a lot of punch the rest of this year, since the employee discounts pulled demand to summer and consumers are worried about rising interest rates, heating bills and gas prices.

"You're looking at a battered consumer," Lindland said. "Trying to get a buyer into the market is going to be tough."

DaimlerChrysler AG: http://www.daimlerchrysler.com

Ford Motor Co.: http://www.ford.com

General Motors Corp.: http://www.gm.com