Targeted incentives pay off for GM, Ford

http://www.freep.com/apps/pbcs.dll/article?AID=/20070303/BUSINESS01/703030332
Targeted incentives pay off for GM, Ford Sales beat expectations in February
March 3, 2007
BY KATIE MERX
FREE PRESS BUSINESS WRITER
Automotive analysts credited targeted incentive programs -- particularly at General Motors Corp. and to a lesser extent at Ford Motor Co. -- with spurring stronger than expected U.S. auto sales in February.
Industrywide sales were relatively flat. But with the help of targeted 0% financing deals and cash incentives, GM beat expectations with a 3.7% increase in sales compared with a year ago, and Ford -- even though it reported a 13.4% drop compared with last year -- beat analysts' expectations that its sales would decline more than 20%.
"The stronger sales performance at GM and Ford owed in part to a sequential increase in incentives," Credit Suisse auto analyst Chris Ceraso said Friday.
So while GM's average incentives were down from February 2006, they rose $642 from January to February.
"That $642 jump from January helps explain away a lot of the retail gain at GM," said auto analyst Kevin Tynan of Argus Research in New York.
But because the company's average incentive remained lower than its domestic competitors -- though still much higher than Japanese rivals -- it does reflect improving product quality and perception, Tynan said.
"It illustrates acceptance of the product a little bit," Tynan said. "If you were going to rank those companies' product portfolios you would probably put GM in the lead right now, in front of Ford and Chrysler, but behind the Japanese competitors, in line with the incentives. ... Basically, they don't have to give customers as much money to buy their stuff."
GM has been trying to wean itself off of the feast-or-famine cycle of making sales based purely on its latest incentive program.
In January 2006, GM announced it would cut the sticker prices on three- fourths of its models an average of $1,300 in an attempt to move sticker prices on GM vehicles -- a key figure for Internet shoppers -- closer to the real prices consumers pay.
More recently, competitors have argued GM is just masking incentives by offering lower sticker prices and is still offering healthy incentives.
But GM chief sales analyst Paul Ballew said that's not the case, adding that the automaker is actually collecting a higher average price per vehicle than the industry.
While GM's sales seem to have benefited in February from incentives, the automaker also got credit from analysts for using very targeted incentives that encouraged customers to come into showrooms.
For instance, as part of a Presidents' Day sale, GM's Saturn brand offered 5-year, no-interest loans on the Vue SUV but not on the award- winning Aura sedan or supply-constrained Sky roadster.
In the past, analysts say, GM discounted vehicles that could compete on their own.
"It seems like GM's were very targeted and they did a very good job with their incentives," said Bradley Rubin, an automotive analyst with BNP Paribas in New York. "Obviously, Ford and Chrysler Group didn't have as much luck."
But all three Detroit automakers will try their luck at incentives again this month.
GM declined to share details, but a spokesman said the company does plan targeted incentives in March.
Chrysler said its customers can get a free Hemi engine in a Dodge Ram 1500 or Durango SUV plus up to $5,000 in cash incentives this month.
And Ford, in conjunction with its Ford Challenge ads -- which show customers comparing Ford vehicles with competitors and saying they like the Fords better -- launched new monthlong incentives on the 2007 Fusion, Expedition, F-150, Mercury Milan and Lincoln MKZ.
The deals include:
39-month lease deals on the Fusion SE I-4, that offer customers a choice of $1,000 cash, 2.9% financing for 60 months or a $0-down, $0- due at signing lease with payments of $249 per month.
$2,000 customer cash or 3.9% financing for 60 months on the Expedition.
$3,000 customer cash or 0% financing for 60 months on most 2007 F-150 models.
A 39-month, $0-down, $0-due at signing lease on the Lincoln MKZ FWD for $386 per month and on the Mercury Milan 1-4 automatic for $256 per month.
Contact KATIE MERX at 313-222-8762 or snipped-for-privacy@freepress.com.
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