Automakers Fine-Tune Spring Sales Strategies

U.S. automakers plan to extend sales incentives to draw buyers into showrooms as they gear up for the start of the spring selling season, but say they will not repeat the deep-discount wars of 2005.

DaimlerChrysler AG's (DCX) Chrysler unit is extending an offer of no-interest financing for five years on select vehicles such as minivans, Chrysler Pacifica, Dodge Durango and Jeep Grand Cherokee through March.

Chrysler is also offering 2.9 percent financing for six years, consumer cash up to $3,000, or a $1,000 bonus on vehicles leased through Chrysler Financial.

Ford Motor Co. (F) said it would match consumers' down payments up to $1,000 on Ford-brand cars and trucks. General Motors Corp. (GM) is preparing to launch a " March Madness" promotion, but has not disclosed the details.

Automakers do not reveal how much they spend on such discounts, but outside analysts closely track available estimates because the size of the incentives indicate how urgently the manufacturers need to move unsold inventory.

A study released by estimated the industry had spent $2.95 billion on incentives in February, with GM, Ford and Chrysler accounting for about 72 percent of that total.

Edmunds analyst Jesse Toprak said Chrysler had emerged as the incentive leader, with an average of $3,771 per vehicle in February, compared with $2,638 for GM and $2,829 for Ford.

Gary Dilts, Chrysler's senior vice president of sales, on Wednesday said he expected the market would remain challenging in coming months as the automaker prepares to launch 10 new cars and truck models.

But he denied that Chrysler was outspending crosstown rivals Ford and GM, which cut its sticker prices in January in a bid to move away from rolling incentive programs.

"Right now we're in the middle of the pack here in terms of the consumer incentive spending," Dilts said on a Wednesday conference call to discuss Chrysler's monthly sales results. "We're all pretty close together. If we add some of the net price moves that GM made, they're significantly the leader in the industry here in terms of incentives."

Some analysts remain skeptical.

"They say they are not increasing their incentive spending, but I have a hard time believing that, especially with the zero-percent financing," Burnham Securities analyst David Healy said. "Chrysler probably has a lot of problems with inventories, and it's trying to solve them by price-cutting."


Paul Ballew, GM's chief of global market and industry analysis, on Wednesday said the company had to compete with "very, very aggressive" incentive spending by Chrysler last month.

With a 3 percent sales gain in February, Chrysler was the only U.S. automaker whose market share increased. "Sales were running down in the early part of the month," Healy said. "In the middle of the month, they launched heavy incentives, and had a very strong close."

Merrill Lynch analyst John Murphy said the incentive war was still on, especially in the SUV and truck categories. "Although the Big Three would have us think the incentives war has run its course, or that a truce has been called, this is by no means the case," he wrote in a research note.

"GM is offering deals to get rid of the previous generation of SUVs, and the competition is responding with lower prices to avoid losing precious market share," he said.

U.S. automakers spent more on incentives in February than their foreign rivals, even as they lost share to competitors such as Toyota Motor Corp. (TM) and Honda Motor Co., according to Edmunds data.

February U.S. sales fell 2.5 percent at GM and 3 percent at Ford, while increasing 2.4 percent at Toyota and a market-leading 8.7 percent at Honda.

GM's massive price promotions last year included an "employee discount" program, which allowed anyone in the United States to buy vehicles at the same price the company's workers pay.

Now the world's largest automaker is trying to reduce such tactics. Ballew said GM's February incentive spending fell by about $1,000 per unit from a year earlier.

He said the company would offer some incentives in March, but not as part of a national program.

Overall, analysts expect GM and its rivals to stick to their plan to offer more limited promotions in 2006, even if it means that discounts are sometimes hidden in the form of lease deals.

Incentives this year will be more selective, and won't include such aggressive discounting as GM's employee pricing, Argus Research analyst Kevin Tynan said.

"You won't see any huge blowout months," he said. "They'll be pared back a bit, but you will still see promotions."