Chrysler marketing costs rise as rival adds rebates

NEW YORK November 26, 2002; Jeff Green writing for Bloomberg reports that DaimlerChrysler AG's Chrysler marketing costs are rising as the third-largest U.S. automaker tries to keep pace with General Motors on incentives to make cars and trucks less expensive for consumers.

Chrysler's fourth-quarter sales and marketing costs will probably rise from the previous quarter's 16.3 percent of revenue because of competition with the General Motors, said Dieter Zetsche, the unit's chief executive officer, in an interview. He didn't say how high the rate would rise.

The biggest automaker, Ford Motor Co. and Chrysler are using cash rebates and discount loans to try to stem U.S. market-share losses to foreign rivals. General Motors, the only profitable U.S.-based automaker in 2001, has led on incentives most of this year. General Motors this month boosted rebates on most 2003 models and stopped offering its longest no-interest loans.

"Chrysler is starting to look better than they have" in getting shoppers who visit its dealers to buy, said CNW Marketing Research analyst Art Spinella, who tracks automakers' incentives.

About 21 percent of customers who visited Chrysler showrooms in October bought vehicles, better than its rate of about 17 percent this year, he said. Chrysler for the year lags rates of about 39 percent for General Motors and 35 percent for Ford, Spinella said.

In October, Ford led with average incentives of $3,816 per model, compared with $3,729 for General Motors and $3,547 for Chrysler, according to CNW Marketing.

Chrysler's fourth-quarter marketing costs are not expected to rise as high as they were in the second quarter when rebates and the cost of an extended engine-warranty promotion pushed them to 19.6 percent of revenue, Zetsche said.

"There would have been a chance to go further down but this hope was basically destroyed by GM's action, so I can't give you a number, but it won't be lower," he said.

Chrysler wants to keep its inducements several hundred dollars less than the largest automaker's and offer a better warranty than rivals' as it tries to return to profitability after a 2001 loss of $1.9 billion, Zetsche has said.

General Motors on Nov. 1 did away with four- and five-year no-interest loans while keeping three-year interest-free financing with no down payment and no monthly payments for 90 days. The company raised its cash-back offer on most vehicles by as much as $1,000.

U.S. auto sales have improved in November compared with October, when the annualized rate fell to 15.4 million cars and trucks, the lowest rate since 1998, Zetsche said. Ford sales analyst George Pipas last week also said the second-largest automaker expects sales to improve in November and December, compared with October.

General Motors originally introduced no-interest loans last year to revive demand following the Sept. 11 terrorist attacks, and its U.S.-based rivals followed. General Motors, Ford and Chrysler still have lost combined U.S. market share this year.

The three automakers' share this year through October slipped to 61.8 percent from 63.3 percent for all of 2002, according to Autodata Corp. Asian rivals, which have depended less on incentives, increased their combined share to 31.4 percent from 30.2 percent.