July 5, 2005

Ford matches GM discounts-price war heats up

By Tom Brown

DETROIT (Reuters) - Ford Motor Co., bowing to pressure fromGeneral Motors Corp., said on Tuesday that it was matching itslarger rival's employee discount consumer incentives program.

Ford announced its new marketing campaign hours after GMsaid it was extending its "Employee Discount for Everyone"deals through Aug. 1.

The GM move was widely expected and set the stage foranother intensification of Detroit's long-running price war.

Under the GM program, which was launched last month and dueto expire July 5, the world's largest automaker is sellinganybody a 2005 model car or truck at the same low price that GMemployees pay.

Ford spokesman David Reuter said the "Ford Family Plan" --which takes effect on Wednesday and will also run through Aug.1 -- would be similar to GM's and shave thousands of dollarsoff the sticker prices of most 2005 models.

The GM program, which resonated with consumers, drove itsJune sales up 41 percent and delivered the company its bestsales month in almost 19 years.

Ford's sales fell for the 13th straight month, meanwhile,and it can ill afford not to remain competitive with itscross-town rival.

The Chrysler arm of DaimlerChrysler is also expected tomatch the GM program on Wednesday, as it too responds tomarketplace pressures brought on by GM.

"We are going to advertise this widely in a huge,significant way throughout the month," said Reuter.

"Its pretty clear from what GM has done that customers likea great deal delivered in a very simple clear way."

Ford's only hot-selling car, the all-new Mustang, will notbe included in the "Family Plan" program, Reuter said.Gas-electric hybrid versions of its Escape sport utilityvehicle are also excluded.

GM's program resonated with consumers because of itssimplicity and because it eliminated the haggling over pricesthat many consumers dread, according to analysts.

But selling cars by slashing thousands of dollars off theirinvoice prices is not without costs, and it can damage anybrand's residual values.


Paul Ballew, GM's head of global market and industryanalysis, told reporters and analysts on a conference call lastFriday that GM's cost of incentives was flat or up onlyslightly in June compared to May.

But Autodata Corp. of Woodcliff Lake, New Jersey, said GM'sJune incentives increased about 11 percent over the previousmonth to an industry-leading average of $4,458 per vehicle.

According to Autodata's incentive numbers, it cost GM morethan $250 million to sell the 558,092 vehicles it sold in Junethan it would have at May's incentive levels.

"This is just going to lead to lower sticker prices ingeneral," Autodata's Dave Lucas said of GM's program and themounting pressure on other automakers to match it.

"This will have ramifications across even the Japanese,"Lucas added. "They certainly will feel the pressure."

Merrill Lynch analyst John Casesa noted that GM has saidlower leasing offset the cost of generous retail deals in June,making it a "financial home run" for the automaker after itsfirst-quarter loss of $1.1 billion.

Casesa cautioned that the full impact of the GM discountprogram would have to take into account the impact on sales andmargins in the future, however.

"The everyday low price strategy should be an easy one forcompetitors to copy," said Casesa in a research note.

"And when they do, we fear that Detroit will have onceagain simply set a lower price level for all its products goingforward, lowering the structural profitability of theindustry."