Car executives gathered in Detroit for the industry’s annual motor show bash are increasingly hopeful the price war that has ravaged profits is coming to an end, according to a report on the Financial Times’ (FT) website.
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The FT said that senior executives at Ford, General Motors and Chrysler believe a wave of new models and an improving economy will stop discounts from escalating, and could even lead to less valuable special deals for buyers.
Their Japanese rivals are also hopeful, believing discounts have to moderate for the simple reason that US manufacturers cannot afford to increase them without heavy losses, the report added.
“If we’d had $US2,000 less [in] incentives, we’d have had money coming out of our ears,” Wolfgang Bernhard, chief operating officer of Chrysler, told the FT.
The paper said average incentives on vehicles from the “big three” passed $4,000 last year, leaving all three making, at best, small profits from car and light truck manufacturing while they also lost market share to foreign rivals such as Toyota, Honda and Nissan – GM’s year-end market share was 28.3%, down from 28.7 the previous year, while Toyota’s rose to 11.2% from 10.4%.
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By GlobalDataBut with signs of improvement in the US economy, the launch of a record number of new products and a belief that Detroit has reached the limits of its ability to spend lavishly, US carmakers expect some moderation in incentive spending, the FT said.
“We don’t have a strong expectation that net price will improve, [but] we expect that the rate of net price decline will mitigate,” Rick Wagoner, GM chief executive, told the Financial Times, which noted that the US net price is a vehicle’s retail (‘sticker’) price less discounts and special finance deals.
Wagoner reportedly said he had been encouraged by the fourth quarter, during which GM’s spending on incentives “seems to have levelled out”.
The FT said that Detroit is hoping that a wave of new passenger cars, for years the weak spot in its battle with Japanese carmakers, will sell mostly on the basis of improved quality and greater design appeal, and less on the offer of discounts.
Such new cars include Chevrolet’s new Cobalt entry-level saloon and coupe, replacing the ancient Cavalier (still strong-selling, thanks to large discounts), and Ford’s new Futura and its Mercury Montego saloon sibling, which are now tipped to effectively replace rather than supplant the also-ancient Taurus and its Sable clone, which will become fleet-only models. Ford also has a new ‘retro-look’ Mustang coupe whose styling echoes the look of mid-‘60s models while Chrysler is launching the new rear-drive 300C sedan and its derivative Dodge Magnum wagon.
The FT said the US carmakers are also looking to added features such as all-wheel drive and leather interiors to generate incentive-free sales. “We think that we will be able to work with a lower incentive assumption than we did for last year. That’s driven by new products,” Joe Eberhardt, head of sales and marketing at Chrysler, told the paper.
According to the Financial Times, there is already some evidence this may be happening. Ford reportedly says sales of better-equipped versions of its new F-150 pickup truck have been higher than expected, with only more basic versions needing incentives.
Jim Padilla, head of Ford’s North American operations, told the FT: “When you look at our profitability in the US per unit I think we’ll surprise people that we’ll out-earn our domestic competition by a sizeable amount.”
Carlos Ghosn, chief executive of Japan’s Nissan, reportedly said he expected incentives to level off, at least.
“Car manufacturers will need to boost their profitability so I think the incentives will, if not go down, [the] maximum will be stable,” he said, according to the FT.
However, the Financial Times noted, none of the carmakers is confident enough to make a firm prediction of falling incentive levels, preferring to wait and see how the next few months of sales perform.
Steve Lyons, Ford’s vice president of sales and marketing, reportedly cautioned that last year’s heavy incentives might have “pulled forward” demand from this year.
“What you’ve got to really watch out for is that in the last couple of years we have stimulated the market with incentives. It’s not clear yet what the upside is even in a stronger economy. We want to see a more stable industry,” he told the FT.
While remaining hopeful, the top executives remain cautious in their business forecasts, the paper said.
Bill Ford, chief executive of the carmaker bearing his name, reportedly said: “We’ve built our plan on the basis that incentives would remain very heavy.”
Dieter Zetsche, chief executive of Chrysler, told the FT he shared his rivals’ hopes but added: “I like what I hear but I won’t believe it until I see actions accordingly.”
