Discounts take back seat for auto sales

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DETROIT (AP) -- U.S. automakers lowered discounts and rebates dramatically in October, part of a strategy to focus more on quality and value and less on cash bonuses. But sales plummeted, and analysts wonder whether automakers will have the patience to stick with their strategy.

DaimlerChrysler AG's Chrysler Group already has responded to October sales by adding a $1,000 discount to all 2005 and 2006 vehicles. General Motors Corp. and Ford Motor Co. quietly have introduced similar discounts for some models.

GM is offering $1,000 on all remaining 2005 vehicles, except the Hummer H1, through Nov. 13, spokeswoman Deborah Silverman said. Ford is extending a 0 percent financing deal on its 2005 F-150 truck and Explorer, Expedition and Lincoln Navigator sport utility vehicles through the end of November, spokesman Jim Cain said. It also is offering $500 on some 2006 F-150 and Ranger trucks and $1,000 on the 2006 Lincoln LS sedan.

"We've got a consumer out there where the confidence levels have been slipping, and they're concerned about the monthly budget," Gary Dilts, Chrysler's senior vice president of sales, said last week. "We feel the need to put some sort of incentive out there that answers the question, 'Why buy now?'"

U.S. automakers had a blowout summer with their employee-discount incentives, which let consumers pay what autoworkers pay. But when the programs ended this fall, GM and Ford said they would lower overall prices and rely less heavily on incentives. Automakers said incentives also make it hard for consumers to figure out the vehicle's price, especially when they are shopping on the Internet.

Automakers made good on that promise in October. The average incentive per vehicle last month was $2,204, down nearly 21 percent from the previous October, Merrill Lynch analyst John Casesa said last week in a note to investors. But sales sank 11 percent industrywide.

GM led the major U.S. and Asian automakers in pulling back spending, with a 24 percent decline in incentives over October 2004, Mr. Casesa said. Chrysler had the highest incentives of any major automaker at $3,075 per vehicle; Honda's were the lowest, at $618.

Toyota Motor Corp. was the only major U.S. or Asian automaker to raise its incentives since October 2004. Mr. Casesa said that was fueled by a 58 percent jump in spending on trucks and sport utility vehicles, indicating the automaker is nervous about demand for those products.

Mr. Casesa predicted that low incentives won't last.

"Although the decline is welcome news for an industry that has been inflating volumes at the expense of margins, we expect the respite in spending activity to be short-lived," Mr. Casesa said.

Rebecca Lindland, an auto analyst with Global Insight in Waltham, Mass., noted that consumers are worried about rising interest rates, heating bills and gas prices.

"You're looking at a battered consumer," Ms. Lindland said. "Trying to get a buyer into the market is going to be tough."