Sales incentives vie with new models at car show
FRANKFURT, Germany (AP) – Costly sales incentives vied with the latest design concepts for attention at the Frankfurt International Auto Show, though one top U.S. auto executive said Tuesday that an improving economy may provide relief from the discounts that have cut into the companies’ profits. General Motors chief executive Rick Wagoner said some easing in the use of offers such as zero-percent financing and rebates appears to be on the horizon if the U.S. economy improves. GM has been among the most aggressive in using the incentives.
“If that happens I would not expect to see incentives to go up at the same rate, and in fact I think we could see incentives level off and begin to ease down,” said Wagoner. But he added that it wasn’t clear when that would happen.
It can’t come soon enough for most automakers. They have seen earnings squeezed by the incentives, which are great for consumers but eat away at profit margins by several thousand dollars per vehicle. Second-quarter profits fell at GM, Ford, DaimlerChrysler, Volkswagen and BMW amid the incentive wars.
Some, like Volkswagen’s chief executive Bernd Pischetsrieder, say it’s better to stay away from incentive one-upmanship – even at the cost of losing sales. Pischetsrieder, showing off his company’s redone Golf GTI, argued that customers wind up taking a hit because lower new car prices hit used car prices as well.
“I don’t think that to make market share and just sell volume is an objective that we will follow,” Pischetsrieder said. “The result is that in two years customers will have much better retention value and we will have loyal customers.” Volkswagen, like luxury automaker BMW, has largely avoided competing through incentives.
But the practice isn’t going away just yet. Asian manufacturers have cranked up their incentives by a third since last year, and saw market share rise 8 percent in August. The U.S. manufacturers dropped 6 percent.
Dieter Zetsche, head of DaimlerChrysler’s U.S. Chrysler arm – which has seen its earnings hard hit by incentives – said the automaker would go on matching its competitors but added that it wouldn’t discount products just to preserve market share. That’s even though the company slipped from No. 3 in the United States to No. 4 behind Toyota in August.
The company is instead focused on achieving “the best balance between margins and increasing share in the marketplace,” Zetsche said. “Share and volume are not our main driving factors,” he said, adding that the company hoped to have more pricing power on the nine new models coming next year. Typically, the deepest discounts come on older models that are less in demand.
Some 60 new models and concept cars – design showpieces not ready for mass production – are to be introduced at the auto show, the largest in Europe with more than 1,000 exhibitors. The show opens to the public Thursday and runs through Sept. 21.
One concept was Ford of Europe’s Visos, a four-seat coupe with gull-wing glass roof panels that flip up to make it easier for backseat passengers to get in and out. The car has a six-cylinder, 350-horsepower engine and a hatchback, part of a trend toward mingling station wagon elements with the coupe format.
Ford of Europe design director Chris Bird said the task was making the typically cramped two-door coupes feel roomier. “Can we take a classic coupe and make it comfortable for four adults?” Bird said.
General Motors’ Opel is showing off its remade Astra compact, a crucial volume model and a competitor for Volkswagen’s remade Golf.
Opel also rolled out the Insignia concept car – a long, rear-wheel-drive coupe, this time with a van-like, sliding door to make room for rear passengers.
Chrysler was showing off a station-wagon concept of its 300C large cars, a model the company says is aimed at markets outside of North America.
And it wouldn’t be an auto show without absurdly powerful, exotic offerings such the SLR, a low-slung 600-horsepower sports car built using Formula One design elements from DaimlerChrysler’s Mercedes division.
AP-ES-09-09-03 1355EDT