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Auto Rebates Losing Effect

By Paul A. EisensteinSpecial to The Christian Science Monitor / March 21, 1990



DETROIT

BUY a car, get a check. Over the past decade, the rebate has become as much a part of the American automobile industry as the spare tire. But while spares have become smaller, rebates keep growing, yet accomplish less. The result is a sharp decline in earnings among each of the United States Big Three automakers. But no one is sure how to cut rebates off.

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To help keep traffic at the dealerships moving, Ford Motor Company had increased its average rebate to $800 a car last year, from $350 in 1988. This year, the average has already risen to around $1,000 a vehicle.

``Rebates, they've lost their impact,'' complains Randy Oler, a manager with Dahl Ford in Davenport, Iowa.

The latest US auto sales numbers back him up. They dropped 3.3 percent from last year's levels in the March 1-10 period. Even some imports are suffering. Most are being forced to come up with incentives to stimulate sales.

``What other product have you ever seen or heard of whose manufacturers ... have to pay people to buy it?'' asks Ron Tonkin, the immediate past president of the National Automobile Dealers Association, which represents the vast majority of the nation's new car dealers.

``Confusing rebates have to cease and prices must be lowered significantly so we can once again attract buyers to our showrooms instead of scaring them away,'' Mr. Tonkin adds. Some auto industry analysts and many car dealers agree with the call for lower prices for new cars.

Corporate executives insist they are sympathetic. Indeed, they are all too well aware that rebates aren't working the way they used to. But price cuts have also been tried before. Three years ago General Motors Corp. launched a new model year by trimming the sticker prices on nearly a third of its line-up. Within months it was forced to offer rebates anyway.

Last fall, Volkswagen announced it would cut prices on most of its new 1990 models. Sales have been plunging ever since.

The problem, says Chrysler Corporation Chairman Lee Iacocca, is that ``it'll be great PR for a couple of days, then they'll wrap fish in the newspapers that carried the story.''

In the meantime, adds a ranking Ford official, any manufacturer that continued to offer new rebates would keep getting press.

Thus, he says, ``The only way we could cut prices would probably be through collusion,'' with all the carmakers agreeing to abandon rebates at the same time.

That would violate the law. Even if it didn't, at the first sign of trouble, one of the manufacturers would almost certainly break ranks, and start offering money-back discounts again.