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Sunday, March 29, 2009

Chrysler sales incentives criticized amid federal aid

You can get a $31,405 Dodge Ram pickup for $17,975 in Denver, much to the delight of Chrysler dealers who are using some significant incentives to get people into showrooms.Chrysler LLC is spending big -- to the tune of more than $5,600 on average per vehicle in incentives -- to reverse its fortunes after months of dramatic sales drops. But the sales strategy is raising some eyebrows as the Auburn Hills automaker has received $4 billion in federal aid and is presenting a case for more help leading up to the March 31 deadline to show its operations are sustainable and its loans can be repaid.


Over the past year, Chrysler's incentives have universally outpaced that of other automakers and their own deals are up 60 percent from a year ago.

In February, Chrysler spent an average of $5,608 per vehicle on incentives, according to Edmunds.com. That compares with $3,681 from General Motors Corp.; $3,384 at Ford Motor Co.; $2,572 at Nissan Motor Co.; $1,682 at Toyota Motor Corp.; and $1,249 from Honda Motor Co.

Chrysler's spending levels raise the question as to whether taxpayer money is being used to subsidize incentives for it and GM at the expense of Ford and others that have not sought government aid, something Chrysler denies.

Steve Landry, head of sales and marketing for Chrysler said the incentives were planned long ago and are not from U.S. Treasury funds.

But even if that were the case, some say it is money well spent.

Using federal money to stimulate demand is a "way of priming the pump," said Sheldon Sandler, chief executive officer of Bel Air Partners in Skillman, N.J., which provides financial services to dealers. "It may be unfair, but I'd rather see them use cash to support incentives and make cars affordable than use the cash to support legacy costs that won't stimulate demand."

In discussing last month's sales, Chrysler Vice Chairman Jim Press said he was aware the competition is criticizing Chrysler's tactics and shot back that the automaker was being penalized for its 17-month head start in eliminating fixed costs, making it possible to sell vehicles for less without sacrificing "profit targets."

In these traumatic times, "everything is being driven by getting cash in the door, whether it is borrowing from the government or selling vehicles at a discount," said David Cole, chairman of the Center for Automotive Research in Ann Arbor.

Justified or not, "I've never seen incentives like this," said Fred Frederick, a Maryland Chrysler dealer who has been in the business 50 years.

Chrysler executives see it paying off. The automaker's February sales were down 44 percent, but after fleet sales are removed and retail sales numbers used alone, which are the figures stimulated by incentives, sales were down 26 percent. That was less than the industry average of 35 percent and Chrysler's retail market share grew 1.4 percentage points, Landry said. "It's better to sell cars and lose a little money than have them sit on the lot and not make any," Sandler said. That's because it is inventory that the dealer has already paid for.

"It costs us all a fortune to keep cars on lots," said Gary Allgeier, financial services director for the Suburban Collection in Troy that has 45 dealers and 30 franchises.

And really deals like the one in Denver are the exception, dealers said.

The advertised Ram in Colorado is a stripped-down model and a deliberate loss leader to draw showroom traffic, said Chris Staton, general manager at Broadway Dodge in Littleton, Colo. Few customers qualify for that particular price, Staton said, because it applies to a bare bones version of the pickup and requires a customer with a Farm Bureau insurance discount and a military background. That profile represents about 1 percent of Staton's customer base..

Meanwhile, sweetening deals is necessary because too little product is being consumed to make anyone profitable, Bel Air's Sandler said. "Everyone is fighting over the one bone." Tamara Darvish, vice president of DARCARS Automotive Group with 26 dealerships and many brands in the Washington, D.C.-area, said, "it's not about making money now. It's about treading water until the economy turns around."

LINK:Chrysler sales incentives criticized amid federal aid | detnews.com | The Detroit News
 
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