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Chrysler now tops in vehicle incentives
Analyst: Average is $3,881
March 3, 2006
BY SARAH A. WEBSTER
FREE PRESS BUSINESS WRITER
The Chrysler Group is disputing it, but data from several industry researchers show that the Auburn Hills-based automaker once so critical of profit-eating incentives is now offering consumers more discounts than anybody else.
Incentive spending is an important piece of the puzzle in evaluating how strong consumer demand is for a company's vehicles and how the automaker's financial performance might change in the future, since cash-back rebates, financing bonuses and other promotions eat into revenue.
Automakers do not publicly release how much they spend on the promotions. Several independent firms estimate incentive spending by collecting information from dealers and other sources.
Estimates by Autodata Corp. of Woodcliff Lake, N.J., show that Chrysler has led the industry in incentive spending the past two months. Chrysler, it said, bested former incentives champ General Motors Corp. in February by nearly $800 per vehicle on average, spending about $3,881 in incentives for each new vehicle.
The consumer Web site Edmunds.com, meanwhile, said its data shows that Chrysler has been leading in incentive spending the past six months. And the site shows Chrysler leading GM by more than $1,000 per vehicle in incentives.
Gary Dilts, Chrysler Group's senior vice president of sales, denied that Chrysler was leading the way on incentives during a conference call with journalists Wednesday.
"We're all pretty close together," he said, noting that the company's internal intelligence puts Chrysler in the middle of the pack on incentive spending.
Another industry source, CNW Marketing Research of Bandon, Ore., shows Ford Motor Co. as the incentive leader, estimating Ford's spending at about $3,944 per vehicle.
Dilts' remarks came just after Chrysler announced it would extend its no interest for 60 months financing special through March on select vehicles, such as the Chrysler Pacifica, Dodge Ram pickup, Dodge Durango SUV, Dodge Dakota pickup, and its Jeep Liberty, Wrangler, Grand Cherokee and Commander SUVs.
Chrysler also is offering consumers 2.9% interest rates for 72 months, up to $3,000 in cash back or $1,000 in bonus cash for leasing through Chrysler Financial.
But deals like these, combined with an enticing product portfolio, may help explain Chrysler's sales gain this year. Its sales for the first two months of the year are up 3.6% compared with the same period a year ago. GM sales were up 1.5% during that period, while Ford sales were down 1.5%.
Chrysler's offerings may be especially enticing to consumers now, since incentives offered by Asian and European competitors remain relatively low and industry-wide incentives have been falling.
Last month, the average incentive for a new vehicle in the United States was $2,527. Over the past three months, that amount has fallen by $45, or 1.8%. February incentives were about $250, or 9%, less than the same month a year ago.
That's a big change from recent years when incentives seemed to rage out of control.
GM sparked an industry-wide discount battle after Sept. 11, 2001, with its Keep America Rolling no-interest loans phenomenon. These days, GM is hoping lower prices and more selective incentives will help its bottom line. GM, which posted a massive $8.7-billion loss last year, cut sticker prices on three-fourths of its models by an average of $1,300 in an attempt to break out of the incentive cycle.
But the catchy offerings from Chrysler in this environment may be giving the automaker a competitive edge.
Chrysler made a profit of $1.8 billion in 2005, compared with $1.7 billion in 2004.
But Paul Ballew, GM's executive director of market and industry analysis, said Chrysler's incentive strategy is intensifying competitive pressures in the marketplace. "DCX has clearly stepped up their incentive spending, especially on the truck side of the ledger," he told journalists Wednesday. "We're all struggling with how to execute against that."
Dilts said Chrysler "did not escalate anything," and that it has only strategically rearranged how it packages its deals. "I'm glad they think it looks like more," he said. "Hopefully, the consumers will think the same."
Chrysler's recent incentive moves seem like a surprising development for an automaker that has boasted some of the hottest domestic products on the market in recent years, such as the Chrysler 300 sedan. And it may show that demand for Chrysler, Jeep and Dodge vehicles is losing some steam.
Despite the promotions and sales gains, Chrysler's share of the U.S. auto market has remained flat, at about 14.4%, for the first two months of the year. That's because Chrysler's sales increases have not outpaced those in the overall industry.
