July 5, 2005

Ford matches GM discounts, ups price war

By Tom Brown

DETROIT (Reuters) - Ford Motor Co. , bowing topressure from General Motors Corp. and hoping to end along losing streak, said on Tuesday it was matching the bigconsumer incentives program that delivered blockbuster salesfor GM last month.

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

The Chrysler arm of DaimlerChrysler isexpected on Wednesday to also match the GM program, as it tooresponds to marketplace pressures brought on by the world'slargest automaker.

The GM move was widely expected and set the stage foranother intensification of Detroit's long-running price war.Under the program, which was launched last month and due toexpire July 5, GM is selling anybody a 2005 model car or truckat the same low price that GM employees 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 theautomaker's June sales up 41 percent and delivered the companyits best sales 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 itslarger, cross-town rival.

"We are going to advertise this widely in a huge,significant way throughout the month," said Reuter, the Fordspokesman. "It's pretty clear from what GM has done thatcustomers like a great deal delivered in a very simple, clearway."

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.

"Customers like the one-price, no-haggle aspect of theprogram and continue to respond to it," said Jane Liu, vicepresident of data analysis at industry tracking firmEdmunds.com.

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."

Edmunds.com, disputing Autodata's calculations, said GM'sJune incentives had only increased 3.6 percent over May.

Merrill Lynch analyst John Casesa said on Tuesday that GM'semployee discounts may well have been a "financial home run"for the automaker after its first-quarter loss of $1.1 billion.

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

"The everyday low price strategy should be an easy one forcompetitors to copy," Casesa wrote 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," he said.

GM shares closed up 18 cents at $34.83 in Tuesday's tradingon the New York Stock Exchange. Ford, also trading on the NYSE,closed up 9 cents at $10.40.