Ford Offers Incentive Program
U.S. auto makers may be returning to sweeping incentive programs in an effort to boost business, as evidence grows that the economy is too weak to generate sufficient sales.
In one of the most telling signs yet of the industry’s growing malaise, Ford Motor Co. announced a broad program of cash rebates and low-interest financing for 17 of its models. The move triggered a slump in auto stocks as investors feared the impact of such programs on car makers’ profits.
“This is more than likely to cause others to lower their prices as well,” said Nick Lobaccaro, an analyst with S.G. Warburg.
The industry’s January sales are also expected to be hurt by the big snowstorm that hit the East Coast, which has kept consumers from shopping even if they wanted to.
Ford shares dropped 62.5 cents to close at $28, General Motors Corp. shares fell $1.125 to $49.50 and Chrysler Corp. shares declined $2.375 to $53.25. All of the stocks trade on the New York Stock Exchange.
Ford’s move toward rebates, even on its restyled Taurus, comes a week after the industry posted surprisingly strong December sales. But those figures were deceptive, analysts said, because of heavy year-end discounting and some auto makers’ inclusion of sales from the first few days in January in the December numbers.
Ford announced its broadest rebate and financing program in at least four years--a $600 cash rebate or a 4.8% interest rate on loans of up to 48 months on 16 models. Ford is offering a $2,000 rebate on its Bronco sport-utility vehicle.
Unlike most of its competitors, Ford had a terrible December, with sales down 9.2% from December 1994 and sales of the new Taurus plunging 35%. Ford dealers ended the month with an 82-day supply of cars and trucks, far above the industry’s 60-day target, according to Autodata Corp., a Woodcliff Lake, N.J., consulting firm.
GM had a 75-day supply of vehicles at year-end, while Chrysler had a 69-day supply, Autodata said.
“What we’re trying to do is balance our dealer inventory with consumer demand,” said Ross Roberts, vice president and general manager of Ford Motor’s Ford division.
GM has been the most passive in the incentive war and is vowing to spend more marketing money on brand building. The company isn’t offering special deals on its newest models and it denied that it will match Ford’s aggressive program.
“We want to hold the line on incentives. We feel our pricing strategy is on target,” GM spokesman Dean Rotondo said.
Some analysts think GM will have no choice, however.
“The market is proving that people are very price-sensitive and willing to swap one car for another based on price,” said Michael Schmall, director of automotive forecasting with J.D. Power & Associates.
Underscoring the point, Toyota Motor Corp. on Tuesday predicted a flat U.S. market for the next four years, saying auto makers will be scrapping for “a larger piece of a pie that isn’t getting bigger.”
U.S. consumers bought 14.7 million cars and trucks last year. Analysts are expecting sales this year to be the same or to rise just slightly.
