Chrysler Shifts Into Discount Mode

By John O’Dell

July 1, 2006 12 AM PT

Times Staff Writer

Employee discount pricing, which ignited auto sales last summer but cost automakers dearly, is back.

DaimlerChrysler’s Chrysler Group said Friday that it would begin a monthlong program today that offers consumers the same discounts that employees get, plus zero-percent financing and a 30-day return policy.

Chrysler already leads the industry in buyer incentives, offering an average of $3,200 per vehicle in rebates, low-interest financing and other sweeteners last month, according to the automotive information service Edmunds.com.

But Chrysler, which has seen sales of its pickup trucks and sport utility vehicles slow as gas prices have risen, needs to help its dealers clear their lots of growing stocks of unsold vehicles.

“We simply cannot do business as usual in this very competitive market,” said Joe Eberhardt, Chrysler’s sales and marketing chief.

The company sees the plan -- which gives customers discounts averaging 10%, plus thousands of dollars in interest savings and the right to return the vehicles within 30 days for a 5% fee -- as the quickest way to boost sales. (Buyers who trade in their old vehicles will be unable to use the 30-day return policy because trade-ins are quickly sold by the dealers and can’t be given back, a Chrysler spokesman said.)

Other automakers said they would take a wait-and-see approach before deciding whether to match Chrysler.

Ford and GM already have zero-percent financing plans and gasoline price subsidy programs in effect.

Last year overall auto sales jumped more than 16% on a year-over-year basis in the first two months the programs were offered. GM, which introduced employee discounts in June 2005, posted a 47% sales gain that month, and when the two followed with employee discount plans of their own, Ford gained 30% in July and Chrysler sales jumped 27%.

Sales then began drying up, however, costing the U.S. carmakers a lot of volume in the last quarter of the year.

This year, both Ford and GM have said that they don’t want to match Chrysler because they want to keep actual sales prices as close to their sticker prices as possible.

But if the three auto companies still have a big backlog of 2006 model year vehicles at the end of July, “it could get the industry back in another spiral of discounts that they really can’t afford,” said George Peterson, president of AutoPacific Inc. automotive market research in Tustin.

Chrysler is promoting its incentive plan as part of a new national ad campaign in which it finally embraces its ties with Germany’s Mercedes-Benz seven years after Mercedes parent Daimler acquired Chrysler.

Since the 1999 deal that created DaimlerChrysler, executives of the two carmakers have insisted that their vehicles retain their individual identities.

Now, though, Chrysler will begin playing up its ability to use components developed by Mercedes-Benz for its Chrysler, Dodge and Jeep vehicles.

“We will be telling the world for the first time about how the best of American and German engineering and design can be found” in Chrysler’s vehicles, said Chrysler Group Chief Executive Thomas LaSorda.

To tie the two companies together in consumers’ minds, Chrysler is using DaimlerChrysler’s mustachioed president, Dieter Zetsche, as its spokesman in a series of “Ask Dr. Z” television and print ads that begin appearing today.

Zetsche is familiar to many in the U.S. because he ran Chrysler Group for five years before returning to Germany last July to take over at DaimlerChrysler.

Shares of DaimlerChrysler rose 74 cents Friday to $49.36.

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Longer on the lot

U.S. automakers are offering big incentives, but their cars, on average, still sit on the lots a lot longer than their Japanese rivals.

Average number of days a car is on the lot before being sold

Chrysler: 84

Ford: 70

General Motors: 63

Honda: 33

Toyota: 31

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Average value of incentives per car