PARIS – Chrysler Group says it will stay out of the low-rate financing frenzy, kicked off by General Motors Corp.’s announcement of an ’04 model clear-out program offering 0% loans for up to 72 months.
Chrysler’s sales and marketing guru says the industry already has reached a point where incentives are losing their effectiveness and this latest round of programs could hurt the entire industry, not just GM. (See related story: Limited-Time Incentive Offers)
“I am not so sure strategically that I fully understand why anybody would do that, because it is surely not in our (the industry’s) interest to keep consumers out of the market for 72 months,” Joe Eberhardt, Chrysler senior vice president-sales and marketing, tells Ward’s in an interview at the motor show here.
While these offers may seem tantalizing to customers, Eberhardt contends they place the customer in an “upside down” borrowing position (meaning they owe more on the vehicle than it is worth) for an extended period of time.
The typical consumer taking advantage of the long-standing 0%/60-month finance offers remain in an upside-down position for up to 38 months, while extending the program to 72 months stretches that upside-down period to as long as 48 months.
“That means you will definitely not see that customer back for four years,” he says. “And if you do see them back, in order to get them out of their then-current vehicle, it will cost you money again.
“You will probably have to pay again a second time to reengage them in the new product.”
Eberhardt says this latest round of programs will put pressure on some auto makers to match GM and clear out their ’04 inventories, but he says the negative perceptions of such programs could have devastating effects on U.S. domestic brands.
“You cannot stimulate more demand by putting infinitely more incentives on a vehicle. We have proof of that in some vehicles. Depending on the customer type, higher incentives might have an inverse effect on sales, especially with current import owners.”
While throwing $500 or $1,000 on the hood may help the buyer feel he is getting a good deal, raising the stakes to $4,000 or $5,000 gives the impression the vehicle really isn’t worth its original price or that something must be wrong with it, Eberhardt says.
Chrysler, however, is running a series of incentive programs on its current vehicles, including some with 0% financing for up to 60 months in combination with marginal cash back. Eberhardt says the auto maker will “remain price competitive” in all of its segments.
Chrysler also has changed the way it communicates with its dealers on incentive and marketing programs.
“We’re discussing with our dealers, about two to three weeks before the quarter begins, the entire marketing plan for that next quarter,” he says. “We lay out our marketing plan for the entire quarter: incentives, products and communication. Because it puts the dealer in a position to now start planning their business.”