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post #1 of 1 (permalink) Old 02-23-2008, 04:58 PM Thread Starter
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Big 3 to deepen discounts

From the Detroit Insider:

Saturday, February 23, 2008
Big 3 to deepen discounts
Automakers roll out creative incentives'08 competition, economy tougher

Sharon Terlep / The Detroit News

Detroit's automakers, stung by nearly two straight years of slumping U.S. auto sales, are set to cough up richer, more inventive deals this year as they try to woo weary consumers back into showrooms.
As much as the Big Three want to avoid profit-eating discounts, executives at the companies say incentives -- used well and tactically -- will be a critical part of surviving 2008.

The automakers aren't looking to return to their notorious practices, when they propped up sales by piling cash on the hoods of cars and trucks nobody wanted in a bid to maintain market share.

But they also know they're in for bruising competition in a weak market against healthier foreign-based competitors. The companies will work to win over car buyers with everything from traditional discounts and finely targeted incentive programs to free entertainment systems.

"We have no intention of becoming a leader in incentives, and we don't have in mind some kind of big blowout program like we've had in the past," Troy Clarke, president of General Motors Corp.'s North American operations, said this month during the Chicago Auto Show. "But it's probably a prudent decision to say, 'I will be more active with incentives at the beginning of the year and try to figure out how sensitive the market is.' "

Detroit automakers have worked hard to kick their incentive habit, with mixed results. Among the Big Three, GM cut incentive spending the most between 2004 and 2007, to $3,018 per vehicle from $3,872 per vehicle, according to Edmunds.com, a vehicle shopping site. Ford Motor Co. was next, cutting back to $3,089 from $3,217. Chrysler LLC spent more at $3,763, up from $3,491 in 2004.

Toyota Motor Corp. and Honda Motor Co. have each bolstered incentive spending since 2004, according to Edmunds. But with average discounts below $1,000 per vehicle, neither company is spending close to what the U.S. automakers are offering.

This year, incentive spending has ticked up across the industry. And with U.S. car and light truck sales expected to hit a 10-year low in 2008, discounts likely will only climb further.

Automakers, especially the Big Three, have long walked a fine line on incentives. Give consumers too much, and profits sink while vehicle resale value and brand image plummets. Offer too little, and consumers go elsewhere. GM found this out last year when it tried to hold the line on incentives for its new full-size pickups even as Toyota piled cash on the hood of its redesigned Tundra pickup. The result: During one month, Tundra sales more than doubled from a year earlier, while sales for GM's new Silverado fell 24 percent.

(by the way Tundra sales were off big time in January. They sold about 12k and were expecting no less than 18k to 25k on the high end)

Incentive spending this year could easily hit record levels, though automakers will try to avoid sweeping discount programs that inflict long-term damage on resale values and brand image, Edmunds chief economist Jesse Toprak said.

More likely, companies will roll out regional programs, give dealers cash to use tactically or employ creative financing offers for customers, such as no payments for the first month.

"Deals are bound to get better simply because the economy is down and the competition is fierce," Toprak said.

Ford has told some dealers it plans a significant increase in incentive spending to counter aggressive pricing by competitors and ensure that demand for older vehicles like the Ford F-150 and Mercury Milan remains strong until newer versions roll out later this year. Executives at the Dearborn automaker say privately that pricing will be one of the most pivotal issues for the U.S. auto industry this year as the domestic market continues to sink in the face of mounting economic headwinds.

Newly private Chrysler will take a different approach, enticing buyers by making features that were optional a part of the standard package on a dozen models.

GM vows restraint on incentives, but concedes it'll likely have to help along sales with discounts, cheap financing and regional campaigns.
GM sales chief Mark LaNeve said recently that GM will likely offer steeper discounting than in recent years, but doesn't plan to return high levels of the past.

"We want to be competitive but we don't want to lead the industry," he said.
Ford CEO Alan Mulally has tried to hold the line on incentive spending -- even at the cost of market share -- as part of his plan to match vehicle production to consumer demand. But new chief marketing officer Jim Farley is teaching Ford some of the tricks he learned at rival Toyota.

Instead of high-profile national campaigns, Ford will use its incentive money selectively to support specific models in specific markets, and local dealer groups will have more say in where and how the money is spent. Instead of across-the-board bonuses designed to lure consumers into showrooms, Ford will target specific areas of the market where it has a chance of stealing share from competitors.

Taking another page from Toyota's playbook, Ford may disguise incentives by offering higher prices for trade-ins or use other tactics that help the customer but don't erode vehicle resale values.

Chrysler recently rolled out its "New Day" packages. A dozen models will feature beefed-up standard packages. The Chrysler Sebring Touring, for example, comes standard with the MyGig entertainment system -- formerly a $650 option.

The additional features essentially lower the price of the vehicle, without putting cash on the hood.

"Everyone else raised prices -- we put a whole package out of increased value and really lower prices," said Deborah Meyer, vice president and chief marketing officer. "Dealers have increased their orders, and turn rates on the vehicles that have New Day packages are stronger than average turn rates."

---
Incentive boost

Facing a tough U.S auto market in 2008, carmakers are looking to lure consumers with discounts and deals. Some examples:

Chrysler LLC will beef up standard packages on a dozen of its models, so features that were once optional will come at no extra cost.

Ford Motor Co. will use its incentive money selectively to support specific models in specific markets, and local dealer organizations will have more say in where and how the money is spent.

Automakers will likely look to offer attractive lease options and creative financing to make vehicles cheaper without putting cash on the hood.
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