Cash-Back Offers Cost Carmakers
DETROIT — `BUY a Car, Get a Check.'' While Joe Garagiola may no longer be pitching cars for Chrysler, the rebates he used to hawk K-Cars have become a fixture of American automotive marketing, much to the delight of consumers - and the chagrin of the auto industry.
Walk into almost any new car showroom in the country these days, and you'll find a bewildering array of cash-back programs. A $1,000 rebate on a coupe, $1,500 on a sedan, reduced-rate financing on a sport-utility vehicle.
Even Detroit's hottest and newest models aren't immune. Ford has been offering cash back on its Taurus and Sable models, and General Motors began luring buyers through rebates within months of the introduction of its three new plastic-bodied minivans, including the Chevrolet Lumina APV.
With the new car market in a slump, even the Japanese are finding they're not immune. Currently, Honda is the only Asian import without a customer cash-back program.
That isn't something the industry is likely to celebrate.
Consider that the Ford Motor Company spent $1,050 on rebates for every car and light truck it sold during the second quarter of 1990, up from $650 during the second quarter of 1989.
General Motors spent a total of more than $4 billion in the United States on incentives last year, and the figure will go even higher in 1990.
The rising cost of incentives was one of the major reasons why Chrysler's profits tumbled from $692 million during the first half of 1989, to $251 million during the first half of 1990. Diminishing returns
What's most frustrating, industry experts say, is that incentives aren't able to do the same job they used to. In the mid-1980s, a lavish incentive program could quickly create waiting lines at dealer showrooms.
Today, however, the new car market remains in the doldrums, even though incentives have nearly doubled over the last year.
``Rebates are clearly having diminishing returns,'' says auto analyst William Pochiluk, of Autofacts, Inc. They no longer do much to bring new buyers to the showrooms, since most customers expect to find incentives whenever they're ready to buy.
The question for consumers, suggests market researcher Chris Cedergren, is whether incentives are really a great deal, or just an industry shell game.
``Rebates are a cost to the manufacturers,'' says Mr. Cedergren, of J. D. Power and Associates. ``The only way they can cover increased costs is by increasing revenues, either by raising prices or by selling more cars. They haven't been selling more cars.'' Higher prices
In other words, the industry charges its customers more so it can give some of that money back.
Ford is raising its prices by 3.2 percent for the launch of the next model-year, and GM has posted a similar increase on comparably-equipped vehicles.
But Chrysler, the company that turned the phrase ``Buy a car, Get a check'' into a way of life as it struggled out of bankruptcy in the early 1980s, wants to break that cycle. It is holding 1991 price increases to about 0.9 percent. Chrysler says it hopes it will have to give less of that money back to customers.
Chrysler's problem is that it doesn't have enough clout to go it alone. Company Chairman Bennett Bidwell admits the rest of the industry will also have to kick the rebate habit.
``I would hope that this is the year it can happen,'' says J. C. Perkins, general manager of GM's Chevrolet division. ``But I don't hold out any hope it's going to happen this year.''
Incentives, Mr. Perkins says with a shrug, are driven by overcapacity in the US new car market. Sales of cars and light trucks have dropped by nearly 2 million annually over the last few years. At the same time, capacity has increased substantially, largely because of ``transplants,'' nearly a dozen Japanese-owned assembly lines in North America.
Volkswagen late last year tried cutting prices on some models, but sales didn't take off the way the company was expecting, and it's back in the market with new incentives. On top of the price cuts, that's a really big dent in company earnings.
So, says Chevrolet's Perkins, ``I wouldn't believe you're going to be able to walk away from incentives. For the near term, they're here to stay.''