Big 3: Employee deals for all - Ford and Chrysler match GM's big discounts
07-06-05, 05:31 AM
#1
Super Moderator
Thread Starter
Big 3: Employee deals for all - Ford and Chrysler match GM's big discounts
Eager to taste sales success of their own, Ford and Chrysler match GM's big discounts.
By Eric Mayne and Brett Clanton / The Detroit News
The auto industry's latest pricing battle mushroomed Tuesday when General Motors Corp. extended an employee discount offer to all consumers by a month and rivals Ford Motor Co. and Chrysler moved to match the deals on most models beginning today.
Under its Ford Family Plan, Ford will offer nonemployee customers pricing that equals about 5 percent below dealer invoice on nearly all 2005 models.
"Consumers made it pretty clear in the month of June that they wanted a clear plan for purchasing their cars," said David Reuter, a spokesman for Ford.
Beginning today, DaimlerChrysler AG's Chrysler Group will offer a similar plan it calls "Employee Pricing Plus," according to Chrysler spokesman Jason Vine.
Under the program, nearly all 2005 Chrysler, Jeep and Dodge models will be offered at roughly 5 percent below what dealers pay, said Kevin McCormick, another Chrysler spokesman.
Chrysler said last week that it would match GM's offer if it was extended, but did not provide details about its program.
While the deals are boosting short-term demand for new cars and trucks, and helping to lower inventories, analysts warn they will hurt profits and reduce sales in coming months by pulling demand forward.
The average industry discount jumped 10 percent last month to a record $3,269, according to Autodata Corp.
The latest discount programs at Chrysler and Ford, which is the only major automaker to post lower sales this year, came the same day that GM extended its wildly successful employee-pricing program for a month. The moves signal that the nation's No. 2 and No. 3 automakers are anxious not to lose ground to their crosstown rival.
GM's discount plan -- representing 3 percent to 4 percent below dealer invoice -- boosted its June sales by 47 percent and helped lift the overall new car and truck market 16 percent last month. The company's extended promotion excludes the Chevrolet Corvette, Pontiac GTO and GM's commercial pickups.
GM's employee-pricing program drove U.S. vehicle sales to an annualized selling rate of 17.53 million units, up sharply from a 15.41 million selling rate in June 2004, according to Autodata Corp. If sales continue at that pace for the remainder of the year, the U.S. auto industry would have its best year on record.
Mark Cornelius, president of Morgan & Co. Inc., an industry consulting firm in West Olive, Mich., said the bang in June from GM's program is likely to be lessened now that copycat deals are available.
"The pop is gone for GM," he said.
"I don't know that it will be as successful going forward."
Ford and Chrysler ended June with excess supplies of unsold cars and trucks, prompting them to match the GM offer.
Ford and Chrysler also are excluding some hot models, including the Lincoln LT pickup, and Ford Mustang, GT and Escape Hybrid models, as well as Ford's European brands.
At Chrysler, the employee discount does not apply to the Chrysler 300, Dodge Magnum, Dodge Charger, Dodge Sprinter van, Dodge Viper sports car, Jeep Liberty diesel and high-performance SRT models, McCormick said.
In addition, analysts expect Ford to cut third-quarter production and warn its profits will come under more pressure.
"GM's strategy is clearly not good news for Ford, which has been trying to maintain prices on new models such as the Five Hundred and Freestyle," Merrill Lynch analyst John Casesa said in a note to investors.
Ford's discount will be offered in addition to cash rebates available on many vehicles.
For instance, the two-wheel-drive Ford Escape XLT model now sells for $26,335. Under the new employee-pricing plan, that price falls to $23,335, and it drops again to $21,335 after a $2,000 cash rebate is added, Reuter said.
For July, Ford also lowered cash rebates on most models. The highest rebate now is $4,000 on the Explorer SUV and Freestar minivan, down from $5,000 in June.
Ford began notifying dealers about the promotion Tuesday and will kick off a major national TV, print and Internet marketing campaign today.
"We are going to advertise this program widely in a big, big way," Reuter said, describing the central logo of the campaign as a doormat reading "Ford Family Plan" with the Ford, Lincoln and Mercury brands displayed.
Ford dealers will receive window stickers that show the new Ford Family price compared with the original price.
Ford is downplaying concerns that matching GM's program will generate a pricing war.
"We have to do what's right for the customer, and the customer spoke pretty loudly in the month of June that they like a simple, clear and consistent message when it comes to pricing," Reuter said.
About the deals
GM: Employee pricing varies by model, but is about 3 to 4 percent below dealer invoice. It's available on new cars and trucks through Aug. 1. Deal excludes Chevrolet Corvette, Pontiac GTO and medium-duty trucks.
Ford: Noncompany employees pay about 5 percent below invoice, plus available cash rebates. Lincoln Mark LT and Ford Mustang, GT and Escape Hybrid are excluded.
Chrysler: Consumers pay 4 to 5 percent below invoice, in addition to any available cash rebates. Deal excludes Chrysler 300, Dodge Magnum, Dodge Charger, Dodge Viper, and SRT performance line.
GM: Employee pricing varies by model, but is about 3 to 4 percent below dealer invoice. It's available on new cars and trucks through Aug. 1. Deal excludes Chevrolet Corvette, Pontiac GTO and medium-duty trucks.
Ford: Noncompany employees pay about 5 percent below invoice, plus available cash rebates. Lincoln Mark LT and Ford Mustang, GT and Escape Hybrid are excluded.
Chrysler: Consumers pay 4 to 5 percent below invoice, in addition to any available cash rebates. Deal excludes Chrysler 300, Dodge Magnum, Dodge Charger, Dodge Viper, and SRT performance line.
07-06-05, 07:56 AM
#2
Lexus Fanatic
Join Date: May 2003
Location: Massachusetts
Posts: 7,864
Likes: 0
Received 0 Likes
on
0 Posts
The big three are just getting pathetic. They are killing themselves with huge price cuts and it's catching up with them. They devalue their products and give them an undesirable image.
Last time I checked, Toyota doesn't need to get desperate and slash their cars down to used car prices.
Oh yeah, they build cars people want.
Last time I checked, Toyota doesn't need to get desperate and slash their cars down to used car prices.
Oh yeah, they build cars people want.
07-06-05, 09:04 AM
#4
Guest
Posts: n/a
Pathetic. The only way people will buy American made cars for the most part, they have to be damn near sold at cost. So sad.
This is CLEAR evidence, that to AMERICANS in the MIND of AMERICANS, American made cars sold by American companies are sub-par to their imported rivals.
BUT AMERICANS will buy AMERICAN MADE CARS sold by import companies, from well built ones to cars/suvs with WORSE quality than the American companies
This has to be damaging psyche of all those workers and management for these companies for years. Its also should be damanging to EVERY American. We basically don't produce world-class cars. We just produce great Trucks/SUVs and the Corvette/Viper and the rest are garbage.
So sad.
This is CLEAR evidence, that to AMERICANS in the MIND of AMERICANS, American made cars sold by American companies are sub-par to their imported rivals.
BUT AMERICANS will buy AMERICAN MADE CARS sold by import companies, from well built ones to cars/suvs with WORSE quality than the American companies
This has to be damaging psyche of all those workers and management for these companies for years. Its also should be damanging to EVERY American. We basically don't produce world-class cars. We just produce great Trucks/SUVs and the Corvette/Viper and the rest are garbage.
So sad.
07-06-05, 10:03 AM
#6
Lexus Champion
Join Date: May 2002
Location: Connecticut
Posts: 2,175
Likes: 0
Received 0 Likes
on
0 Posts
I absolutely hate how domestic manufacturers are adopting Kia's marketing strategy. 
Chrysler:
I wonder if we'll be seeing more Crossfires on the road after this. If they're subject to this incentive - that'd be quite a bargain - I'd probably go for a Crossfire at around $28,000 (or under). Sure it's a dump on the inside and the driving dynamics aren't all that impressive - but it's still pretty exclusive - in that not too many people own them.
Since the Chrysler 300 is NOT included in the deal ... I don't really see what other Chrysler products are going to really clear in response to this incentive program. The PT Cruiser is played out, the Sebring is trash, the Caravan sells pretty consistently but has competition from a wide range of lower-priced alternatives ... I guess the Pacifica might sell a little better this month. I'd hit the Limited (monochrome paint - no black plastic panels, 19 inch wheels) for $30,000
Ford:
I don't see Ford moving a whole lot more Five-Hundred's than they have been. No matter how people justify that age-old 3-liter, it's just not creating much of a response. I don't know why Ford tried to merely replace the Taurus with the Five-Hundred, they should have made the car quite a bit more appealing and spent some money on the drivetrain.
I like the Freestyle and think that it has potential. There've been innumerable problems with the Focus and the refresh was kinda lame.
What do you guys think will sell.
M.
Chrysler:
I wonder if we'll be seeing more Crossfires on the road after this. If they're subject to this incentive - that'd be quite a bargain - I'd probably go for a Crossfire at around $28,000 (or under). Sure it's a dump on the inside and the driving dynamics aren't all that impressive - but it's still pretty exclusive - in that not too many people own them.
Since the Chrysler 300 is NOT included in the deal ... I don't really see what other Chrysler products are going to really clear in response to this incentive program. The PT Cruiser is played out, the Sebring is trash, the Caravan sells pretty consistently but has competition from a wide range of lower-priced alternatives ... I guess the Pacifica might sell a little better this month. I'd hit the Limited (monochrome paint - no black plastic panels, 19 inch wheels) for $30,000
Ford:
I don't see Ford moving a whole lot more Five-Hundred's than they have been. No matter how people justify that age-old 3-liter, it's just not creating much of a response. I don't know why Ford tried to merely replace the Taurus with the Five-Hundred, they should have made the car quite a bit more appealing and spent some money on the drivetrain.
I like the Freestyle and think that it has potential. There've been innumerable problems with the Focus and the refresh was kinda lame.
What do you guys think will sell.
M.
Last edited by whipimpin; 07-06-05 at 10:52 AM.
07-06-05, 03:37 PM
#7
Lexus Fanatic
Originally Posted by 1SICKLEX
Pathetic. The only way people will buy American made cars for the most part, they have to be damn near sold at cost. So sad.
.
.
When you have low quality, in many ( not all ) cases you have to compensate with low price.
Fortunately, the Koreans are finding the secret to both good quality AND low price...although their prices have started to come up a little too.....noticeably.
Trending Topics
07-06-05, 10:42 PM
#8
Guest
Posts: n/a
Originally Posted by mmarshall
It may be pathetic, but it DOES work. GM sales are up over 40% from a year ago....which is astronomic by auto-industry standards.
When you have low quality, in many ( not all ) cases you have to compensate with low price.
Fortunately, the Koreans are finding the secret to both good quality AND low price...although their prices have started to come up a little too.....noticeably.
When you have low quality, in many ( not all ) cases you have to compensate with low price.
Fortunately, the Koreans are finding the secret to both good quality AND low price...although their prices have started to come up a little too.....noticeably.
07-07-05, 02:07 AM
#9
Lexus Champion
Join Date: May 2002
Location: Connecticut
Posts: 2,175
Likes: 0
Received 0 Likes
on
0 Posts
Originally Posted by 1SICKLEX
I mean, I give them credit for the plan, it cleary has worked wonders and clearing all that old inventory. But in the long run, its gonna kill resale and any prestige the cars had.
M.
07-07-05, 05:53 AM
#10
Super Moderator
Thread Starter
Iacocca back as Chrysler voice
Chrysler and Ford hate to follow General Motors when their biggest rival launches a marketing or pricing deal they have to match to stay competitive. The question becomes, "Okay, how can we make this sound like our own deal and not a copycat?" The answer for Chrysler may well turn out to be the return of Lee Iacocca pitching for his former company.
Automaker reaches into its past to touch new customers: 'If you can find a better car, buy it.'
By Brett Clanton / The Detroit News
Associated Press
Lee Iacocca, then-vice president and general manager of Ford, stands in front of a 1960 Falcon, left, and a 1965 Mustang in 1965.
Behind his pitch
• The former Chrysler chairman will be paid a flat fee to serve as a television spokesman as part of the $75 million advertising campaign for Chrysler's new employee discount plan.
• Iacocca's foundation will receive $1 per vehicle sold. Proceeds will be donated to the Iacocca Foundation in support of diabetes research.
Lee Iacocca, the flamboyant former chairman of Chrysler Corp., is returning to the airways to help pitch the automaker's car and truck lineup.
Iacocca, who has been estranged at times from Chrysler since retiring in 1992, will appear in a series of TV commercials as part of a $75 million advertising campaign touting a new employee-pricing promotion available on most Chrysler, Dodge and Jeep vehicles.
In the spots, which begin airing today, the 80-year-old Iacocca will appear alongside former "Seinfeld" star Jason Alexander, who will revive the most memorable line from Iacocca's popular commercials of the 1980s: "If you can find a better car, buy it."
It was Iacocca's personal television appeals that helped rescue the automaker in the 1980s from the brink of bankruptcy. This time, the message will be more humorous and aimed at countering a massively popular employee-pricing offer by rival General Motors Corp.
"We were looking for a way to cut through the clutter out there with a memorable campaign," said George Murphy, senior vice president of global brand marketing at Chrysler, now a unit of Germany's DaimlerChrysler AG.
The campaign will support Chrysler's new "Employee Pricing Plus" program, which began Wednesday and runs through Aug. 1. The promotion offers most 2005 Chrysler vehicles at prices that average 4 to 5 percent below dealer invoice, plus any rebates.
In the case of the Dodge Durango SUV, which carries a $3,500 rebate, the promotion could shave a total of $8,000 to $9,000 off the sticker price, said Gary Dilts, Chrysler's senior vice president of sales.
Iacocca was unavailable for comment, but a spokesman for the Iaccoca Foundation, a Boston-based nonprofit agency that raises money for diabetes research, said the former Chrysler boss was happy to be back with his old company.
"Mr. Iacocca has a great affinity for Chrysler and hopes to be part of Chrysler's new campaign," spokesman Russell LaMontagne said.
Chrysler executives approached Iacocca just last Friday and after reviewing and revising scripts over the weekend, Iacocca and Alexander shot the first commercial Tuesday in New York City. Additional commercials featuring Iacocca are scheduled to be made today, Chrysler said.
Iacocca helped establish the cash rebate as a major marketing tool in the U.S. auto industry when he appeared in over 60 commercials during the 1980s. Such rebates have ballooned in recent years, notably at Detroit automakers, and the industry has struggled to wean consumers off them.
While popular with many shoppers because they can be applied as a down payment on a new car or truck, generous rebates erode profits, brand equity and a model's residual value over time.
In addition to cash-back offers, Detroit automakers, led by GM, have escalated the industry's latest marketing battles by extending employee discounts to all consumers.
Ford Motor Co. announced a competing discount deal this week in response to GM's decision to extend its employee-pricing program through July. Chrysler is also offering employee pricing in Canada.
Despite Chrysler's efforts to move away from profit-eroding incentives and price vehicles closer to what consumers actually pay, Murphy said GM's program was too successful not to counter.
"It's much better to ride the current than to swim against it," Murphy said.
Chrysler has outpaced the industry's sales gains this year, but lost market share in June when GM launched the latest discount war with employee-style pricing for all consumers.
The latest Chrysler advertising campaign marks a major homecoming for one of Detroit's most storied automotive executives.
Iacocca's history with Chrysler covered the full spectrum -- from savior to corporate raider to persona non grata, in keeping with his blunt but charismatic personality.
Four months after Ford Chairman Henry Ford II fired Iacocca as president of Ford in July 1978, he took up with Chrysler and promptly figured out the automaker was in big trouble. He fired executives, bargained with the United Auto Workers union to lower salaries and benefits for hourly workers, lowered his own salary to a dollar a year, and secured loans from the federal government to bail out the company.
Five years later, Chrysler was back on its feet and on July 13, 1983, Iacocca made a big show of paying back the federal government, boasting: "We at Chrysler borrow money the old fashioned way. We pay it back."
Under the feisty leader, Chrysler set the industry on its ear by introducing the first minivan in 1984, a market segment in which the automaker is still the leader.
But by 1995, after he joined billionaire Kirk Kerkorian's unsuccessful bid for Chrysler, Iacocca was vilified by many employees as a traitor. Chrysler directors even scuttled plans to name the company's new Auburn Hills headquarters tower in honor of Iacocca.
After the merger of Chrysler and Daimler-Benz in 1998, Iacocca was repeatedly rebuffed by DaimlerChrysler Chairman Juergen Schrempp in his attempts to return to the company as an adviser or spokesman. At the time, Chrysler was losing money again and in need of a sales boost.
"Schrempp doesn't want to be upstaged by even the aura of having me around," Iacocca told The Detroit News in 2002. "The guy doesn't want me around but I think I could give them some credibility."
But that will be ancient history to many viewers who still remember the fiery executive for his best-selling books and near run for U.S. president in 1988.
"I don't think people remember he left under a cloud," said Marian Salzman, executive vice president and director of strategic content at J. Walter Thompson in New York. "They remember he turned around Chrysler. We think of Lee Iacocca like a Jack Welch, an elder statesman."
In 2003, on the eve of Ford's 100th anniversary, Iacocca told The News he still considered himself a Ford man at heart. He spent more than 30 years at Ford and personally created such iconic models as the Mustang, the first pony car.
"If I hadn't gotten fired, I'd never have had the chance to do all of the other things," he said.
In addition to a flat fee, Iacocca will receive $1 for each vehicle sold through the end of the year, with proceeds going to his foundation in support of diabetes research, which was founded in 1984 in memory of his first wife, Mary, who died of the disease.
As of late Wednesday afternoon, Iacocca was still in final negotiations over his involvement in the campaign.
But Chrysler said TV ads had been shot and will be aired today as scheduled.
Detroit News Staff Writers Ed Garsten and Eric Mayne contributed to this report
Automaker reaches into its past to touch new customers: 'If you can find a better car, buy it.'
By Brett Clanton / The Detroit News
Associated Press
Lee Iacocca, then-vice president and general manager of Ford, stands in front of a 1960 Falcon, left, and a 1965 Mustang in 1965.
Behind his pitch
• The former Chrysler chairman will be paid a flat fee to serve as a television spokesman as part of the $75 million advertising campaign for Chrysler's new employee discount plan.
• Iacocca's foundation will receive $1 per vehicle sold. Proceeds will be donated to the Iacocca Foundation in support of diabetes research.
Lee Iacocca, the flamboyant former chairman of Chrysler Corp., is returning to the airways to help pitch the automaker's car and truck lineup.
Iacocca, who has been estranged at times from Chrysler since retiring in 1992, will appear in a series of TV commercials as part of a $75 million advertising campaign touting a new employee-pricing promotion available on most Chrysler, Dodge and Jeep vehicles.
In the spots, which begin airing today, the 80-year-old Iacocca will appear alongside former "Seinfeld" star Jason Alexander, who will revive the most memorable line from Iacocca's popular commercials of the 1980s: "If you can find a better car, buy it."
It was Iacocca's personal television appeals that helped rescue the automaker in the 1980s from the brink of bankruptcy. This time, the message will be more humorous and aimed at countering a massively popular employee-pricing offer by rival General Motors Corp.
"We were looking for a way to cut through the clutter out there with a memorable campaign," said George Murphy, senior vice president of global brand marketing at Chrysler, now a unit of Germany's DaimlerChrysler AG.
The campaign will support Chrysler's new "Employee Pricing Plus" program, which began Wednesday and runs through Aug. 1. The promotion offers most 2005 Chrysler vehicles at prices that average 4 to 5 percent below dealer invoice, plus any rebates.
In the case of the Dodge Durango SUV, which carries a $3,500 rebate, the promotion could shave a total of $8,000 to $9,000 off the sticker price, said Gary Dilts, Chrysler's senior vice president of sales.
Iacocca was unavailable for comment, but a spokesman for the Iaccoca Foundation, a Boston-based nonprofit agency that raises money for diabetes research, said the former Chrysler boss was happy to be back with his old company.
"Mr. Iacocca has a great affinity for Chrysler and hopes to be part of Chrysler's new campaign," spokesman Russell LaMontagne said.
Chrysler executives approached Iacocca just last Friday and after reviewing and revising scripts over the weekend, Iacocca and Alexander shot the first commercial Tuesday in New York City. Additional commercials featuring Iacocca are scheduled to be made today, Chrysler said.
Iacocca helped establish the cash rebate as a major marketing tool in the U.S. auto industry when he appeared in over 60 commercials during the 1980s. Such rebates have ballooned in recent years, notably at Detroit automakers, and the industry has struggled to wean consumers off them.
While popular with many shoppers because they can be applied as a down payment on a new car or truck, generous rebates erode profits, brand equity and a model's residual value over time.
In addition to cash-back offers, Detroit automakers, led by GM, have escalated the industry's latest marketing battles by extending employee discounts to all consumers.
Ford Motor Co. announced a competing discount deal this week in response to GM's decision to extend its employee-pricing program through July. Chrysler is also offering employee pricing in Canada.
Despite Chrysler's efforts to move away from profit-eroding incentives and price vehicles closer to what consumers actually pay, Murphy said GM's program was too successful not to counter.
"It's much better to ride the current than to swim against it," Murphy said.
Chrysler has outpaced the industry's sales gains this year, but lost market share in June when GM launched the latest discount war with employee-style pricing for all consumers.
The latest Chrysler advertising campaign marks a major homecoming for one of Detroit's most storied automotive executives.
Iacocca's history with Chrysler covered the full spectrum -- from savior to corporate raider to persona non grata, in keeping with his blunt but charismatic personality.
Four months after Ford Chairman Henry Ford II fired Iacocca as president of Ford in July 1978, he took up with Chrysler and promptly figured out the automaker was in big trouble. He fired executives, bargained with the United Auto Workers union to lower salaries and benefits for hourly workers, lowered his own salary to a dollar a year, and secured loans from the federal government to bail out the company.
Five years later, Chrysler was back on its feet and on July 13, 1983, Iacocca made a big show of paying back the federal government, boasting: "We at Chrysler borrow money the old fashioned way. We pay it back."
Under the feisty leader, Chrysler set the industry on its ear by introducing the first minivan in 1984, a market segment in which the automaker is still the leader.
But by 1995, after he joined billionaire Kirk Kerkorian's unsuccessful bid for Chrysler, Iacocca was vilified by many employees as a traitor. Chrysler directors even scuttled plans to name the company's new Auburn Hills headquarters tower in honor of Iacocca.
After the merger of Chrysler and Daimler-Benz in 1998, Iacocca was repeatedly rebuffed by DaimlerChrysler Chairman Juergen Schrempp in his attempts to return to the company as an adviser or spokesman. At the time, Chrysler was losing money again and in need of a sales boost.
"Schrempp doesn't want to be upstaged by even the aura of having me around," Iacocca told The Detroit News in 2002. "The guy doesn't want me around but I think I could give them some credibility."
But that will be ancient history to many viewers who still remember the fiery executive for his best-selling books and near run for U.S. president in 1988.
"I don't think people remember he left under a cloud," said Marian Salzman, executive vice president and director of strategic content at J. Walter Thompson in New York. "They remember he turned around Chrysler. We think of Lee Iacocca like a Jack Welch, an elder statesman."
In 2003, on the eve of Ford's 100th anniversary, Iacocca told The News he still considered himself a Ford man at heart. He spent more than 30 years at Ford and personally created such iconic models as the Mustang, the first pony car.
"If I hadn't gotten fired, I'd never have had the chance to do all of the other things," he said.
In addition to a flat fee, Iacocca will receive $1 for each vehicle sold through the end of the year, with proceeds going to his foundation in support of diabetes research, which was founded in 1984 in memory of his first wife, Mary, who died of the disease.
As of late Wednesday afternoon, Iacocca was still in final negotiations over his involvement in the campaign.
But Chrysler said TV ads had been shot and will be aired today as scheduled.
Detroit News Staff Writers Ed Garsten and Eric Mayne contributed to this report
07-07-05, 06:21 AM
#11
Driver
Join Date: May 2005
Location: Ga
Posts: 105
Likes: 0
Received 0 Likes
on
0 Posts
I really can't comment on the auto industry, I guess the question is "why are the imports doing so well"? I guess people are starting to shell out more money to get a better car instead of "new shiny junk". However, it wasn't too long ago that Nissan was hurting bad, and then Renault bailed them out and now they are making some great looking cars.
The exception to the above rule about domestics is this....the damn Mustang will never die, it doesn't matter how crappy it is, people will always buy it..they have to have the "rumble".
I remember looking at my mom's ford tempo instrument cluster, and then looking at the instrument cluster in my friends 1993 Mustang GT and thinking..."wow, they are identical"....
The exception to the above rule about domestics is this....the damn Mustang will never die, it doesn't matter how crappy it is, people will always buy it..they have to have the "rumble".
I remember looking at my mom's ford tempo instrument cluster, and then looking at the instrument cluster in my friends 1993 Mustang GT and thinking..."wow, they are identical"....
07-09-05, 06:32 AM
#14
Super Moderator
Thread Starter
The downside to auto industry discounts
Saturday, July 9, 2005
By Rachel Beck / Associated Press
NEW YORK -- General Motors Corp.'s "Employee Discount for Everyone" program sent the automaker's sales soaring last month to the highest monthly total in two decades and allowed it to unload huge amounts of inventory.
Now, Ford Motor Co. and DaimlerChrysler AG's Chrysler Group are launching pricing schemes of their own.
These are busy times for U.S. automakers, and GM's recent success is the first bit of good news to emerge from the world's largest automaker in a long while. Whether that can be sustained may hinge on how all the automakers play the promotional game going forward. Big discounts can often be a blessing for bolstering sales, but they can also become a curse for profits.
Automakers might want to look at the retail industry to see how discounting can help as well as hurt business. Merchants, especially department stores, have become increasingly reliant on promotions to lure consumers into their stores.
But shoppers have become somewhat numb to the constant discounting. They often wait until they know it is the absolute lowest price before they buy (just think of the success of the post-Christmas sales). While that might clear out inventory, it doesn't do much for profits.
The auto industry isn't in such a predicament yet, but it has come to rely on promotions to drive customer traffic. That push largely started after the Sept. 11 terrorist attacks, when automakers launched zero-percent financing deals to revive sales, and they have rolled out other promotions since.
But the current scheme extends beyond what has been done before -- which is exactly what has some industry-watchers worried.
On June 1, GM began offering its vehicles to the public for the same price that GM's employees pay. That allowed customers to buy vehicles for an average of $400 to $500 less than they spent in May, before major cash rebates. GM spent an average of $4,458 per vehicle on incentives in June, up $449 from May.
Those discounts, which took the haggling out of car buying, hit a positive note with car buyers. GM tallied a 41 percent jump in its sales in June compared with a year ago, the highest monthly total in nearly 19 years and a big gain from the single-digit growth it has seen so far this year.
In addition, GM inventory declined 26 percent to 980,000 units, an important reduction before 2006 models arrive later this year.
Given the robust response, GM is extending the program through Aug. 1. But now it will face competition, with Ford and Chrysler both announcing that they would offer similar deals starting this month.
Automakers say that these deals are only for the short term, but whether that holds true is unclear. For one, should sales slow dramatically after the employee-discount programs end, they might be forced to consider cutting prices again.
There also are particular concerns over what happens when the 2006 models are launched later this year. Consumers may balk if they perceive the prices are significantly higher than what's in the showrooms now. Analysts say that could mean that the automakers are left with no choice but to implement another round of promotions.
"Now we are at employee-level discounts. Is there a level below that, like $500 more off that price, that they will have to go to next because that is what consumers expect?" asked B. Craig Hutson, a senior bond analyst at Gimme Credit, a research company specializing in corporate bonds.
Should Detroit's Big Three automakers continue the promotions, some analysts worry that will cause the sales effect to fizzle over time. Morgan Stanley auto analyst Stephen Girsky said in a note to clients this week that "the longer these programs last, the less successful they will be" and suggests that is exactly what happened with GM's "Keep America Rolling" zero-rate financing campaign in 2001, which was an initial success.
There is also the issue of what the heavy discounting does to a brand over time. It's possible that a brand's value diminishes if consumers associate an automaker with its promotional programs.
Even with all those concerns, GM should get credit where credit is due. It set off major car buying with this promotion, even for its SUVs that it had been struggling to move out in recent months. In addition, GM managed to win over customers who have not bought its cars before. Its market share climbed above 30 percent last month, well above the 25.7 percent realized year-to-date, Hutson said.
It's rare to see a such a successful discount program, which is why all U.S. automakers need to plan their next move carefully.
source : detnews
By Rachel Beck / Associated Press
NEW YORK -- General Motors Corp.'s "Employee Discount for Everyone" program sent the automaker's sales soaring last month to the highest monthly total in two decades and allowed it to unload huge amounts of inventory.
Now, Ford Motor Co. and DaimlerChrysler AG's Chrysler Group are launching pricing schemes of their own.
These are busy times for U.S. automakers, and GM's recent success is the first bit of good news to emerge from the world's largest automaker in a long while. Whether that can be sustained may hinge on how all the automakers play the promotional game going forward. Big discounts can often be a blessing for bolstering sales, but they can also become a curse for profits.
Automakers might want to look at the retail industry to see how discounting can help as well as hurt business. Merchants, especially department stores, have become increasingly reliant on promotions to lure consumers into their stores.
But shoppers have become somewhat numb to the constant discounting. They often wait until they know it is the absolute lowest price before they buy (just think of the success of the post-Christmas sales). While that might clear out inventory, it doesn't do much for profits.
The auto industry isn't in such a predicament yet, but it has come to rely on promotions to drive customer traffic. That push largely started after the Sept. 11 terrorist attacks, when automakers launched zero-percent financing deals to revive sales, and they have rolled out other promotions since.
But the current scheme extends beyond what has been done before -- which is exactly what has some industry-watchers worried.
On June 1, GM began offering its vehicles to the public for the same price that GM's employees pay. That allowed customers to buy vehicles for an average of $400 to $500 less than they spent in May, before major cash rebates. GM spent an average of $4,458 per vehicle on incentives in June, up $449 from May.
Those discounts, which took the haggling out of car buying, hit a positive note with car buyers. GM tallied a 41 percent jump in its sales in June compared with a year ago, the highest monthly total in nearly 19 years and a big gain from the single-digit growth it has seen so far this year.
In addition, GM inventory declined 26 percent to 980,000 units, an important reduction before 2006 models arrive later this year.
Given the robust response, GM is extending the program through Aug. 1. But now it will face competition, with Ford and Chrysler both announcing that they would offer similar deals starting this month.
Automakers say that these deals are only for the short term, but whether that holds true is unclear. For one, should sales slow dramatically after the employee-discount programs end, they might be forced to consider cutting prices again.
There also are particular concerns over what happens when the 2006 models are launched later this year. Consumers may balk if they perceive the prices are significantly higher than what's in the showrooms now. Analysts say that could mean that the automakers are left with no choice but to implement another round of promotions.
"Now we are at employee-level discounts. Is there a level below that, like $500 more off that price, that they will have to go to next because that is what consumers expect?" asked B. Craig Hutson, a senior bond analyst at Gimme Credit, a research company specializing in corporate bonds.
Should Detroit's Big Three automakers continue the promotions, some analysts worry that will cause the sales effect to fizzle over time. Morgan Stanley auto analyst Stephen Girsky said in a note to clients this week that "the longer these programs last, the less successful they will be" and suggests that is exactly what happened with GM's "Keep America Rolling" zero-rate financing campaign in 2001, which was an initial success.
There is also the issue of what the heavy discounting does to a brand over time. It's possible that a brand's value diminishes if consumers associate an automaker with its promotional programs.
Even with all those concerns, GM should get credit where credit is due. It set off major car buying with this promotion, even for its SUVs that it had been struggling to move out in recent months. In addition, GM managed to win over customers who have not bought its cars before. Its market share climbed above 30 percent last month, well above the 25.7 percent realized year-to-date, Hutson said.
It's rare to see a such a successful discount program, which is why all U.S. automakers need to plan their next move carefully.
source : detnews
07-09-05, 06:54 AM
#15
Lexus Champion
Join Date: Jul 2001
Location: Redondo Beach, CA
Posts: 2,212
Likes: 0
Received 0 Likes
on
0 Posts
Isn't this a slap in the face to the tens of thousands (hundreds of thousands?) of employees of the Big 3 car companies? After all, they're already cutting their jobs and slashing their retirement benefits, now they're giving their last big perk to everyone in America.
And who in their right mind is going to buy an American car after these incentives run out? The entire buying public is going to wait for the next similar promotion. Others have already talked about the impact on resale values and prestige. I guess the only winners in the long-term will be the service departments (and I'm not taking a swipe at American car quality), because there will be more cars on the road and therefore more coming in for oil changes and whatnot.
I vaguely remember a Danny Clements quote where he said something to the effect that it's great Lexus is the top-selling luxury car brand in America, but that accolade was not his goal at all. He said he'd much rather sell fewer cars that maintain their high standards, and make a reasonable profit on them, than to sacrifice what's truly important simply for sales numbers.
The ONLY way this could work well for the Big 3 in the long run is if all these people flocking to dealerships now really fall in love with their Fords, Chevys, and Chryslers and become loyal customers. Then when it's time to trade in for a new car in a few years they will go back to the same brand again and won't need the huge financial incentive to do so.
And who in their right mind is going to buy an American car after these incentives run out? The entire buying public is going to wait for the next similar promotion. Others have already talked about the impact on resale values and prestige. I guess the only winners in the long-term will be the service departments (and I'm not taking a swipe at American car quality), because there will be more cars on the road and therefore more coming in for oil changes and whatnot.
I vaguely remember a Danny Clements quote where he said something to the effect that it's great Lexus is the top-selling luxury car brand in America, but that accolade was not his goal at all. He said he'd much rather sell fewer cars that maintain their high standards, and make a reasonable profit on them, than to sacrifice what's truly important simply for sales numbers.
The ONLY way this could work well for the Big 3 in the long run is if all these people flocking to dealerships now really fall in love with their Fords, Chevys, and Chryslers and become loyal customers. Then when it's time to trade in for a new car in a few years they will go back to the same brand again and won't need the huge financial incentive to do so.