Chrysler to Tweak Incentives

LAS VEGAS November 4, 2002; Justin Hyde writing for Reuters reports that stung by an October U.S. market share that approached 10-year lows, DaimlerChrysler AG's Chrysler arm will tweak its incentives to make them more competitive with those from General Motors Corp., company executives said on Monday.

But the drop did not alter Chrysler's view of the U.S. auto industry's price war as economically irresponsible, and executives said they would still try to keep their deals less costly than those from GM and Ford Motor Co.

Last month "the gap between the incentive level of GM and Ford and us became huge," Chrysler President Dieter Zetsche told Reuters in an interview. "Obviously there are some levels of a gap where its getting tough for us to stay successful."

Chrysler's 31 percent decline in October sales versus a year ago gave it a U.S. market share of 11.5 percent, 1.7 percentage points below its figure for the year to date. While GM and Ford also suffered about a 30 percent drop in sales compared with a record-setting month a year ago, their market shares were much healthier, with GM actually running ahead of its share for the year.

For the past year, GM has pursued a strategy of gaining market share through incentives such as interest-free loans, an array of cash rebates and its current "triple-zero" program of no down payment, no interest and no payments for three months. The plans have cost GM billions of dollars, but have also helped the automaker boost its sales and its profits.

While Ford has grown more aggressive with its incentives in recent months, Chrysler has been more reluctant, saying such deals cause too much damage to profits and train consumers to buy on price alone. But with growing signs of weakness among American consumers, some analysts wonder how Chrysler and Ford can avoid throwing more money at buyers.

"Profitable or not, Chrysler and Ford may need to shed their pacifist pricing daisies and mix it up with the General, else they risk bearing the brunt of Mr. Consumer's spending slowdown," Goldman Sachs analyst Gary Lapidus said in a research note.

NUCLEAR OR CONVENTIONAL?

Jim Schroer, Chrysler's executive vice president of sales and marketing, told Reuters in an interview on Monday that Chrysler had let too large of a gap open up between GM's incentives and its own in October. He said GM's deals had given it a larger market share, but not helped its overall volume, and that GM's revised deals announced last week were less generous.

"While we had a share number for October that's totally unacceptable, we're getting to a range now where assuming there's not an escalation from them, we should be able to show a more respectable performance in the month of November," Schroer said.

Schroer also said while incentives had played a role in boosting industry sales for much of the past year, a larger boost had come from home mortgage refinancing, which allowed thousands of consumers to free up money for new vehicles. He said refinancing began to slow in September, and that automakers would have to adjust accordingly.

"This nuclear level of incentives that did generate volume that could perhaps pay for the discounts -- we feel strongly that game is over," he said.

"We would love to see the level of incentives modified to a level that had some degree of economic sense to the bottom line of the company. Just buying market share to say you've got a share number is not economically rationale and in the interest of our shareholders."

Schroer and Zetsche also said while consumer confidence has fallen to nine-year lows, the ability of buyers to afford a new vehicle remained relatively high. Zetsche said confidence could rebound if a number of concerns, such as the election and war with Iraq, were resolved or if economic data improved.

"I'm pretty optimistic it's not a long-lasting phenomenon, but that it takes relatively little in the sense of momentum coming from wherever to change the tide," Zetsche said.