Automakers Could Face Re-Run of Price Wars

A repeat of the costly price wars U.S. automakers hoped to avoid this year appears more likely, according to analysts, as the traditional Big Three confront sagging sales and nagging worries about gas prices.

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General Motors Corp. in particular has vowed to stay clear of big discount programs this year in favor of a simpler pricing plan and a marketing campaign that stresses the relative value of its Chrevrolet brand. But aggressive incentives from competitors will force the No. 1 automaker to up the ante, analysts said on Wednesday and Thursday.

"We anticipate pricing to remain very competitive, with pricing pressure across the board," CSM Worldwide analyst Joe Barker said.

"We'll see virtually every auto company turn up the dial on incentives as we progress through the spring selling period and the summer sell-down period," Barker said. "Over the next three to four months is going to be a very good time to buy a vehicle."

Analysts and investors closely watch such discount programs, which cut into automakers' profitability.

DaimlerChrysler (DCX) AG's Chrysler, which has outspent competitors on incentives and discounts this year, announced zero-percent financing for a range of models this week, including its Dodge Ram truck line.

Ford Motor Co. (F) is also offering interest-free loans for a period of five years on some of its SUVs, including the Explorer and Mountaineer, and some analysts said it would have to step up incentives on its market-leading pickup trucks as well.

GM said it will offer $1,000 toward the purchase of a new vehicle and also offer interest-free loans of up to six years on 2006 models of full-size SUVs such as the Chevrolet Tahoe and Suburban and the GMC Yukon.

GM buyers can also break purchase or lease contracts that expire before April 30, 2007.

The offers, which will run through July 5, come on the heels of a 7 percent drop in monthly sales at GM, a 3 percent decline at Ford and a 4 percent drop for Chrysler.

"All automakers, including GM, will be forced to incentivize more in the summer," Argus Research analyst Kevin Tynan said. "They have to clear their inventory before the summer shutdown and the new model year."


So far this year, GM's average incentive spending per unit has been $3,050, while Ford has spent $3,189 and Chrysler has spent $3,769, according to Autodata Corp.

By contrast, Toyota Motor Corp. (TM), which is on track to overtake GM as the world's largest automaker, only spent $978 per vehicle and Honda Motor Co. Ltd. (HMC) spent $682 per unit.

With gas prices at $3 a gallon in many areas, some automakers are offering rebates in the form of free gasoline cards.

Morgan Stanley analyst Jonathan Steinmetz said he expects high gas prices to keep the automakers "playing the incentives game," especially for vehicles sensitive to gas prices.

GM is offering a $1,000 fuel card with any new 2006 or 2007 Chevrolet and GMC vehicles equipped with FlexFuel technology in the Chicago-Rockford and Minneapolis-St. Paul markets through July 31.

FlexFuel vehicles are capable of using E85, a fuel made of 85 percent ethanol and 15 percent gasoline.

"You'll see more of these creative-type discounts through the summer months, but you won't see any massive blowouts like last year," Argus Research analyst Kevin Tynan said.

Last summer, U.S. automakers unleashed a flurry of discount programs, led by GM's sweeping offer of employee pricing for everyone.

Analysts expect the biggest discounts to be in the full-size pickup trucks and the mid-size sport-utility segments.

"GM is spending very little in that category right now, and other players are spending a lot of dollars to move their products," Barker said. "Ford is spending in excess of $10,000 on the Lincoln Navigator. At some point, GM is going to have to offer some incentives, just to compete."

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