Auto prices plummet; rebates rise as new '99 vehicles make debut

Not this year.

Automakers are in an all-out price war. They're luring customers into showrooms with lower sticker prices, rebates up to $5,000 and financing rates below 1 percent - even on some '99s.

Deflation has come to the auto industry - and it may be here for a long while.

"Consumers are getting more for their money than they ever have before," analyst Lincoln Merrihew of J.D. Power and Associates said. "It doesn't look like it will change soon."

What makes this fall unusual is that discounts are on the rise while the economy's running on all cylinders, gasoline's cheap and summer sales were robust.

"The market is unbelievably competitive," Chrysler Corp. Chairperson Robert Eaton said. "There's never been a period when incentives were this high and the economy and the market were as good as they are now."

The primary reason for the intense competition is the industry has more capacity to build vehicles than worldwide demand warrants.

"It's overcapacity," said economist Bill Wilson of Comerica Bank. "The Big Three almost resemble OPEC now - they just keep cutting prices."

Automakers' efforts to cut manufacturing costs over the past few years have paid off in billions of dollars in savings, allowing most companies to pass on some of that windfall without sacrificing profits.

In the first 20 days of September, dealer and manufacturer incentives averaged $3,664 per vehicle sold, according to CNW Marketing Research. That's up 21 percent from $3,022 a year ago.

General Motors Corp. fired off another round of big rebates last week on '98s and '99s, ranging from $500 on several cars and vans to $5,000 on the '98 Cadillac DeVille Concours. As an alternative, GM offers discount financing as low as 0.9 percent.

The discounts are good through the end of the year. If successful, they'll spur competitors to increase their incentives, too.

"Ultimately, we have to meet the competition out there," Eaton said.

GM's rebates are aimed at recovering market share the company lost after two devastating strikes that all but halted its North American production in June and July. Its U.S. market share plummeted 10 percentage points to about 21 percent in July and August.

The world's biggest automaker needs to get its share back above 30 percent, or it may be forced to slow production, close plants and order layoffs to adjust to a smaller market.

"We're going to be fighting for every sale we can get," GM Chairperson Jack Smith said last week.

The latest rebates coincide with price cuts on some '99 models.

Ford Motor Co. is offering its flagship Taurus LX sedan at $1,000 less than the sticker for a comparably equipped '98. The SE wagon version is down $1,840.

Similar discounts are offered on the Taurus' twin, the Mercury Sable.

On top of that, Ford's offering $500 rebates or discount financing rates on the Taurus and Sable.

"Not only have the sticker prices come down, but the incentives are still there as well," Merrihew said. "In the old days, you might have one or the other, but not both."

Other automakers have kept prices unchanged, but added more standard equipment. The base sticker price of the popular Audi A4 sedan, for example, remains at $23,790 for '99, but the car now includes keyless entry, lockable headrests and a first-aid kit as standard equipment.

Though sales through August were robust, there are some recent signs that the market may be softening despite the rebates and price cuts.

CNW's Art Spinella said dealer floor traffic was down an average of nearly 18 percent nationwide for the month through Sunday - an unusually sharp drop.

The recent gyrations in the stock market may be partly to blame.

"Where we're seeing the lower floor traffic is in the upper-middle and upper income groups, which for the most part have dominated the new car market," Spinella said.

Strong incentives that the Big Three automakers offered last spring also may have caused some consumers to buy sooner than they had planned, pulling sales ahead from the fall.

The drop in floor traffic varies from city to city; some dealers say sales remain strong, while others confirm Spinella's statistics.

"It's really rough," said Alan Helfman, general manager of River Oaks Chrysler-Plymouth-Jeep-Eagle in Houston. "There's hardly anyone coming into the showroom. It's not normal."

Helfman said many of his customers are waiting to see what happens to the stock market.

If sales fall, that will only guarantee more incentives.

"The only way to maintain the demand is to offer incentives," Spinella said Monday.

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