Ford Matches GM, Chrysler With Employee-Discount Plan (Update4)
Ford Matches GM, Chrysler With Employee-Discount Plan
July 5 (Bloomberg) -- Ford Motor Co. matched General Motors Corp. in offering all buyers the same discounts to employees after the incentives helped GM record its best sales month in 18 years in June.
The program, called the ``Ford Family Plan,'' will begin tomorrow and apply to 2005 Ford, Lincoln and Mercury models, spokesman David Reuter said in an interview. Earlier today, GM said that its plan, which sparked a 47 percent increase in June U.S. sales, will be extended to Aug. 1. DaimlerChrysler AG's Chrysler begins its version of GM's program tomorrow.
``GM is forcing the others to roll it out, and it just stresses the competitive pressures that have been brought to bear in the market,'' said Wil Stith, a portfolio manager at MTB Investment Advisors in Baltimore, who helps manage about $2 billion in fixed-income assets including Ford and GM debt. ``The gains could be fleeting, but it was a good ploy from GM.''
GM and Ford, the two biggest U.S. automakers, have tried several new programs this year to reverse market share losses to competitors such as Toyota Motor Corp. and Nissan Motor Co. Ford has lost U.S. market share for 28 straight months, and declining sales prompted Ford to twice lower its earnings forecast this year, most recently on June 21. Ford's first-quarter profit fell 38 percent.
The company now expects full-year profit, excluding some one- time costs, of $1 to $1.25 a share compared with a forecast of $1.75 to $1.95 in January. Ford, of Dearborn, Michigan, doesn't make forecasts for net income. On May 5, Standard & Poor's cut its ratings on Ford debt to junk status, BB+.
Toyota, Nissan and Honda Motor Co. spokesman today said the Japanese-based companies wouldn't match the U.S. automakers' plans. Asian automakers' U.S. market share fell in June for the first time since August 2004.
Mustangs Not Included
Under the Ford plan, customers will be offered reduced prices and cash rebates. For example, the XLT version of the Ford Escape sport-utility vehicle will have a discounted price of $23,335 compared with the normal $26,070, Reuter said. Customers will be offered an additional $2,000 off, putting their final cost at $21,335, he said.
Dealers are being told today of the plan's details, and advertisements will begin tomorrow, Reuter said. The program doesn't apply to Ford Mustang and GT cars and the hybrid gasoline- electric Escape SUV, he said. Ford's Volvo, Jaguar, Land Rover and Aston Martin brands also aren't covered.
GM's June employee-discount offer helped lift U.S. industry sales for the month to an annual rate of about 17.5 million cars and trucks, from 15.4 million in June 2004 and 16.7 million in May, according to Autodata Corp. of Woodcliff Lake, New Jersey.
Ford's sales in June rose 0.7 percent. Its U.S. market share fell to 17.2 percent from 19.8 percent a year earlier. In 2000, Ford claimed 24 percent of all U.S. sales.
`Bloodshed' Inevitable
``No war transpires without bloodshed,'' said Sasha Kamper, who helps manage $86 billion in debt at Principal Global Investors in Des Moines, Iowa, including GM and Ford bonds. ``For those companies competing solely on price, future margins are the likely casualties.''
GM began offering all buyers the same discount it gives to employees on June 1 after its U.S. sales through May fell 6.7 percent and inventories of unsold vehicles climbed while GM cut production. Detroit-based GM had a first-quarter loss of $1.1 billion, and its U.S. market share had fallen to an 80-year low while Toyota and other Asian rivals posted market-share records.
``It's like `Keep America Rolling' was in '01 -- let's keep it going as long as it works,'' Argus Research analyst Kevin Tynan in New York said in an interview. ``Keep America Rolling'' was GM's initial offer of no-interest financing made shortly after the Sept. 11 terrorist attacks.
Biggest Since 1986
The discount, which was to expire today, helped lift GM's June sales to 558,092 vehicles, 47 percent above a year earlier and the highest for any month since September 1986. GM's U.S. market share for the month reached 33 percent, more than seven points higher than its share through May.
``It was inevitable that the others followed,'' said Maryann Keller, an auto analyst with Maryann Keller & Associates in Greenwich, Connecticut. ``This was a very successful and compelling promotion on GM's part. GM was able to garner a huge market share in June.''
Found and Lost
GM has a history of giving up market share gained from big incentive programs, UBS analyst Rob Hinchliffe said in a report today. In September 1986, the automaker's incentive-fueled market share rose to 44.6 percent, Hinchliffe said. By the end of that year, the share had dropped back to 35 percent. GM had 1 million fewer U.S. sales in 1987 than in 1986, he said.
The Chrysler offer also allows buyers to combine the employee discount with other rebates, Chrysler sales chief Gary Dilts said on a conference call July 1.
``Right now there's no move under way to do that,'' Toyota spokesman Xavier Dominicis said in response to the employee- pricing plans. ``We just had a price increase.''
Toyota on July 1 announced price increases on 2006 model Camry sedans and coupes averaging $150 per vehicle, or about 0.7 percent. The price of RAV4 compact SUVs will go up by $300, or an average of 1.5 percent, and Prius hybrids will cost an additional $300, or 1.4 percent more, Toyota said.
``We're looking at the long-term picture and sustainable growth,'' Dominicis said after Toyota sales rose 14.4 percent in June. Honda, which had an 8.9 percent increase in June, also won't match, spokesman Andy Boyd said today.
``Only GM and Nissan gained market share last month,'' said Fred Standish, a spokesman for Nissan, whose U.S. sales rose 19 percent in June. ``We did that without breaking from our effort to hold our incentive spending as low as possible.''
GM shares rose 12 cents to $34.77 at 4:16 p.m. in New York Stock Exchange composite trading. They have fallen 13 percent this year. Ford rose 9 cents to $10.40 and has dropped 29 percent this year. Stuttgart, Germany-based DaimlerChrysler's U.S. shares fell 38 cents to $40.10.
To contact the reporter on this story: Bill Koenig in Southfield, Michigan, at wkoenig@bloomberg.net; Jeff Green in Southfield at jgreen16@bloomberg.net
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