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Big 3 eager to curb deals


Automakers aim to wean buyers off incentives that ate $44 billion in '03 profits

By Eric Mayne / The Detroit News


Automakers are pushing to curb runaway incentive costs after spending a record $44 billion in 2003 on cash rebates and cut-rate financing.

While the deals have kept car and truck factories humming during tough economic times, they’ve also left the Big Three with paper-thin profit margins and a customer base that expects deeper and deeper discounts.

Now the companies are counting on an economic recovery, revamped product lineups and improved quality to help wean buyers from discounts.

Detroit’s automakers also are quietly raising sticker prices and rolling out an unprecedented wave of innovative offers to woo incentive-hungry consumers while protecting profits.

Despite these efforts, few predict a major decline in the deep discounts any time soon.

In 2003, the industry’s per-vehicle incentive spending averaged $2,664, according to Autodata Corp. — up 42 percent from a 2002 average of $1,873. Domestic brands discounted cars and trucks by an average of $3,712 last year, up 45 percent over 2002.

And so far this year, General Motors Corp., Ford Motor Co. and DaimlerChrysler AG’s Chrysler Group have boosted discounts.
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So far, $1,000 has been plenty for the 2004 Malibu, as it's been selling well.

As for the Colorado, as I've said before, it's a bit kinky for a big part of the S-10's traditional clientele, which is bimodal, with kids hopping in ZR-2's and last-time buyers taking the base trucks. When they're talking about brand equity, the S-10's is shot, in that not only to the S-10 buyers expect a giveaway price, but there really hasn't been much ammo for the salesperson to work with. The 2x4 Z-71 might very well be the saving grace. I see bigger incentives hitting the Colorado, but, as the article suggests, I dont' see GM simply larding on the free cash.

Right now, negative equity is a huge problem throughout the industry, with no make or model, save perhaps the Honda Odyssey and the 2002 V-8 powered F-bodies, being safe. Long-term leins (72 to 90-freakin-6 months) and an industry-wide decrease in down payment are far bigger culprits than resale value. Mitsubishi had a disastrous "no payments for a year" campaign that has left people thoroughly buried, and has contributed to the complete restructuring of the company's finance programs, due to huge numbers of expensive reposessions.

From my experience, Honda and Lexus owners are finding themselves 5-grand or more in the bucket just like everybody else. Dealerships want the business, and the Big Three can't afford to pay union workers not to build cars, so rebates remain.

A simple case in point: The $10,700 Cavalier 1SV. It has an invoice price of just under $10,300 (depending on regional dealership co-op advertising charges), so there's no margin to gulp down negative equity, and it has no rebates. Plenty of buyers -want- them, but we've sold -one-, to a customer without a trade. We do better with identical 1SA Cavaliers, despite the fact that they cost about 2 grand more after the $3,000 rebate, because the rebate gets people out of their trades.

GM has smartened up, and has offered buyers 50% down-payment matches worth up to $1,000, and $500 value certificates that work as bonus cash, that dealerships can more-or-less use to their discretion.

The down-payment match (also applicable to positive trade equity), I think, is among the best incentives available, as it demands responsibility and it continues to save the entry-level customer money as long as they own their vehicle. It can be a huge boon to customers looking to establish or re-establish credit, as lower advances (i.e. bigger down payments) can often qualify those customers for far lower interest rates. Consider this highly realistic scenario: A customer with previous credit difficulties paying 15% on $12,000 versus 10.5% on $9,000 on the same $13,000 Aveo, especially because that customer inevitably will want to trade within 2 years.

On the high end vehicles, offering something like a 100% down payment match of up to, say, $2500 would be just as worthwhile from a dealership standpoint, as it would likely have the effect of switching cash customers to finance. Cash customers are notoriously profitless, unloyal, and tend to be harsher on the Customer Satisfaction surveys. The result here would be not only a more profitable customer, but a happier one.

Gotta cut this short, we're leaving!

Ghrankenstein
 

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Any success that the Colorado has will be short lived. It is entering a field of old dried up models. However, Nissan just unvieled the new Frontier which will make more that 250HP, a 5 speed auto/6 Speed Manual, and Titan looks. Toyota will bring the new Tacoma out in the next year or so. Dodge has the new Dakota coming, as does Ford with it's Ranger. The Colorado's 220HP and 4sp Auto just ain't gonna cut it.

That fact that GM is offering 1k back on the Malibu shows that GM just can't seem to get off the rebate bandwagon.
 

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Looks like we've got a Negative Nancy here!

Any success that the Colorado has will be short lived. It is entering a field of old dried up models. However, Nissan just unvieled the new Frontier which will make more that 250HP, a 5 speed auto/6 Speed Manual, and Titan looks. Toyota will bring the new Tacoma out in the next year or so. Dodge has the new Dakota coming, as does Ford with it's Ranger. The Colorado's 220HP and 4sp Auto just ain't gonna cut it.
The Frontier looks tough, but as for looks, the Colorado looks tougher, and it offers more cab/chassis/drivetrain choices than the Frontier. As I've posted before, it's gonna be up to GM to compete. The 4.0L might offer 250 hp, but at what expense in fuel economy, to the 24 mpg hwy of the Colorado's I-5?

We also have had a 315 hp turbo I-5 on the shelf for 2 years now, and as long as GM doesn't see it as too competitive with the not-yet H3's 350 hp I-5t, we'll have a serious advantage. Even a low-boost, high-torque turbo for the I-5 would be a big advantage over the 4.0 of Nissan. Should Chevy get the full monster, we'll be competitive with the Frontier, Tacoma, and Ranger for a good time to come. The chassis is already there, and the truck has already been shown to have serious off-road capability. Screw the competition, as long as GM has their priorities right. Granted, GM has to have their priorities right, but I'll bet on them based on their recent moves.

That fact that GM is offering 1k back on the Malibu shows that GM just can't seem to get off the rebate bandwagon.
Gahhhh, a lame argument, when I've already outlined the argument in favor. The Malibu already offers a quality and content advantage, at a huge price difference over the competition. The rebate represents GM's corporate leverage on trade-ins, vs. the competition's "nothing" or "less" at a much higher price. MSRP to MSRP, rebate regardless, the Malibu beats the competition, and it's a great car on top of all that.

Ghrankenstein
 

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Originally posted by Ghrankenstein@Jan 19 2004, 07:57 PM
Long-term leins (72 to 90-freakin-6 months) and an industry-wide decrease in down payment are far bigger culprits than resale value.
72 to 90 months? Hard to believe that people
will sacrifice common sense for a desired car,
when it is obviously beyond their means. Sad.
 

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"Right now, negative equity is a huge problem throughout the industry, with no make or model, save perhaps the Honda Odyssey and the 2002 V-8 powered F-bodies, being safe."


Ghrank, Just in case I can't keep myself away from a new GTO, does this quote mean I'd likely get a pretty good trade in value on my Red 02 Firebird Formula Hurst 6 speed, chrome wheels(1 of 179) w/20K?

I can't help but be curious. Thanks!! :D
 

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Originally posted by Ghrankenstein@Jan 20 2004, 01:59 AM
Looks like we've got a Negative Nancy here!

Any success that the Colorado has will be short lived. It is entering a field of old dried up models. However, Nissan just unvieled the new Frontier which will make more that 250HP, a 5 speed auto/6 Speed Manual, and Titan looks. Toyota will bring the new Tacoma out in the next year or so. Dodge has the new Dakota coming, as does Ford with it's Ranger. The Colorado's 220HP and 4sp Auto just ain't gonna cut it.
The Frontier looks tough, but as for looks, the Colorado looks tougher, and it offers more cab/chassis/drivetrain choices than the Frontier. As I've posted before, it's gonna be up to GM to compete. The 4.0L might offer 250 hp, but at what expense in fuel economy, to the 24 mpg hwy of the Colorado's I-5?

We also have had a 315 hp turbo I-5 on the shelf for 2 years now, and as long as GM doesn't see it as too competitive with the not-yet H3's 350 hp I-5t, we'll have a serious advantage. Even a low-boost, high-torque turbo for the I-5 would be a big advantage over the 4.0 of Nissan. Should Chevy get the full monster, we'll be competitive with the Frontier, Tacoma, and Ranger for a good time to come. The chassis is already there, and the truck has already been shown to have serious off-road capability. Screw the competition, as long as GM has their priorities right. Granted, GM has to have their priorities right, but I'll bet on them based on their recent moves.

That fact that GM is offering 1k back on the Malibu shows that GM just can't seem to get off the rebate bandwagon.
Gahhhh, a lame argument, when I've already outlined the argument in favor. The Malibu already offers a quality and content advantage, at a huge price difference over the competition. The rebate represents GM's corporate leverage on trade-ins, vs. the competition's "nothing" or "less" at a much higher price. MSRP to MSRP, rebate regardless, the Malibu beats the competition, and it's a great car on top of all that.

Ghrankenstein
Sorry dude, but I gots ta disagree with you. Looks are completely subjective so we aren't gonna go down that road. However, HP (and looks) sell vehicles and when your brand new product puts down numbers equal to that of an aging field, well, thats a prob. I'll give you the fuel economy, at least for now, since Nissan hasn't released the #'s. But take a look at he Titan's numbers, it runs with the Silverado 5.3 (14/18 vs. 15/18) in fuel economy but wins in HP. (By the book it's only 10HP, but it is well known that the Titan is underrated). But run for slips with a guy in a Titan, even in an SS, and you'll probably be walking home. By the way, your looking at 18/23 for a 4x4 Colorado, which I will admit is pretty good.

Don't get me wrong, I'm not some sort of Nissan freak. I did however buy a 2k2 Maxima since Pontiac (you know the "performance" division) doesn't see fit to put a Manual in their "Performance" sedans. I just think that GM didn't put as much effort in the Colorado as they should have. Is it good enough for today, sure. Good enough two years from now, I'm not convinced.

The Malibu on the other hand I think is an excellent car. There too though, I think it's lacking in the motor dept. However, it has some features that the others don't have, i.e. remote start.

At the end of the day, my point was that GM needs to get away from these rebates, ESPECIALLY on their new models. Remember it's a business not a charity, the goal is to make big profits on your vehicles. There aren't big profits in cars to bigin with so giving money back really doesn't help. If you want to talk leverage lets talk Toyota, who doesn't do big rebates and has more money in the bank than all three of the "American" car companies combined.
 

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Originally posted by thehemi+Jan 20 2004, 09:21 PM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (thehemi @ Jan 20 2004, 09:21 PM)</td></tr><tr><td id='QUOTE'> <!--QuoteBegin-Ghrankenstein@Jan 19 2004, 07:57 PM
Long-term leins (72 to 90-freakin-6 months) and an industry-wide decrease in down payment are far bigger culprits than resale value.
72 to 90 months? Hard to believe that people
will sacrifice common sense for a desired car,
when it is obviously beyond their means. Sad. [/b][/quote]
Welcome to America! People do the same with houses, clothes, watches and on and on. It's funny, when I see people driving Benzes, Escalades, and the like, I'm inclined to think that many of those people in fact are less well-healed than the folks driving the Tauruses and Accords.

It's interesting to compare the number of people who finance their cars in America versus those in other countries, like China, whose people, I'm told, are much more financially conservative. Now that foreign banks and finance companies are moving in, though, it'll be interesting to see what develops...
 

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Ok lets not get in a fight. The big 3 said this last year aswell and look at what happened.
GM seams to be the worse offender saying they are out of the incentive business, then being the first to come out with 0%,
What is strange is that the Imports are now following suite, after sticking it out last year and making it work. I watched a Toyota commercial last night that was only about finance deals on Corolla/Matrix and not about the cars, My first time to see that.
 
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