Rebates Cost Ford $4 Billion Annually

Rebates are costing Ford Motor Co. about $4 billion a year, eroding the auto maker’s profit as it fights to hold its U.S. market share, executives said at the company’s annual meeting Thursday.

Ford President Philip Benton said after the shareholders’ meeting that the average of about $1,000 in incentive costs for every car and light truck Ford sells is about double last year’s rate.

Ford, GM and Chrysler all reported last week that incentive costs helped push their first quarter profits sharply lower from a year ago.

Ford, the nation’s second-largest auto maker behind GM, earned $506.2 million during the first three months of the year, down 69% from last year’s company record first-quarter earnings. GM’s quarterly earnings fell 54%, and Chrysler’s dropped 80%.

“We believe the increased marketing and product expenditures will continue to affect profits throughout the year,” Ford Chairman Harold Poling told shareholders. Poling succeeded Donald Petersen as Ford’s chairman March 1.

If incentives work, they boost a company’s sales pace but cut directly into profit. Ford’s share of the U.S. market for domestically built cars stood at 28.6% at the end of April, compared to GM’s 46% and Chrysler’s 11%.

In a news conference after the two-hour meeting, Poling said he hoped that with the new products Ford is offering this year, including a new Escort subcompact and Explorer sport-utility vehicle, the company will be able to reduce its rebate costs.

Typically, auto makers hesitate to put incentives on new vehicles, thinking that their freshness makes them popular without the enticements.

GM President Robert Stempel said Wednesday that the new vehicles his company introduces this year should cut GM’s incentive costs.