Monday, October 6, 2003

Carmakers accelerate incentives

By Randy Tucker
The Cincinnati Enquirer

It's October, so rebates on the remaining 2003 models at car lots are hardly a surprise. But dealers also are offering deals on new 2004 arrivals, even as they're still trying to dispose of the 2003s.

The Big Three domestic automakers - General Motors, Ford and DaimlerChysler - are so stuck in the quicksand of endless incentives that all have expanded zero-percent loans and rebate offers on their 2004 models. That move, in turn, has sweetened the deals on 2003 cars and trucks.

Foreign carmakers are also adopting price-cutting measures.

"It's a little earlier than usual for a new model year to be getting substantial incentives, but we're seeing a lot of them, especially of the unseen variety," said Art Spinella, president of CNW Marketing, an auto-industry research firm in Bandon, Ore.

Why is this happening? The automakers are trapped in a vicious cycle.

"This market is merciless," said Paul Taylor, chief economist with the National Association of Automotive Dealers.

"It's really very competitive to make sure that you get that share of whatever profits the industry can generate. The only way to do that is increase market share," Spinella said. "The only way right now to increase market share is to incentivize cars to the point where people will buy a vehicle even though they may not necessarily need one right now."

But carmakers and dealers aren't advertising some of the 2004 incentives, to avoid damaging their brands' image.

At Ford, the "focus now is on moving the 2003 models," Wes Isaacs, new car sales manager at Montgomery Ford, said. "I've never seen so much money (rebates and cash back) on the 2003 models, and that has a lot to do with the incentives on the 2004s.''

Some 2004 models have been discounted as much as $4,000 to boost sales, which, in turn, has led to deals of as much as $7,000 off some 2003 models.

The discounts on 2003 models are generally greater than those on 2004 models because most consumers would upgrade to the 2004 models if they could get the same deal, Isaacs said.

That would leave dealers with a surplus of 2003 inventory and limited space for 2004 models, which is what they're trying to avoid.

On average, most auto buyers can save at least twice as much on a new 2003 Ford as they could on a comparably equipped 2004 model, Isaacs said.

For example, the discount being offered on a 2004 Ford Expedition is about $2,000, but comparably equipped 2003 models are selling for as much as $4,000 below the original sticker price, he said.

The difference in discounts is even steeper for the Ford Ranger pickup, which can be had for as much as $3,000 off the sticker price for the 2003 model, while 2004 models are being discounted by about $1,000.

For most consumers, the incentives aren't about saving money; they're about getting a snazzier model. "Only about a third of incentive dollars are being spent to reduce payments. The other two-thirds is being spent to increase the content of the vehicle purchased," Spinella said.

For example, a customer offered a $1,000 rebate often uses that money to move up to, say, the Eddie Bauer design model.

Said Spinella: "Very few new cars are bought out of necessity."

Consumers can't wait too long if they expect to take advantage of the deals on 2003 models, said Robert Williams, assistant new car sales manager at Mike Castrucci Chevrolet in Milford.

"The incentives on the 2004s and 2003s are great, but we don't have as many 2003s,'' Williams said. "That's true across the country.''

But those who miss the deals on the remaining 2003s, might find comparable deals on 2004 models if they're patient, he said.

"It's all about selling cars," Williams said. "Once the 2003s are gone, you'll probably see even better discounts on the 2004s."


CBS MarketWatch contributed to this report.


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