Summer auto deals questioned

Employee discounts saved little more than old deals

August 26, 2005|By KNIGHT RIDDER/TRIBUNE

WASHINGTON - Employee discounts save car buyers only a little more money than the incentives automakers have used traditionally to clear out end-of-the-year inventories, some auto industry analysts say.

They say the discounts are a fresh way to package incentives that have always been available at the end of a car model year.

While employee-discount campaigns left the "impression of large discounts," they "were, in fact, in line with seasonal norms ... of the incentive programs they replaced," according to a new analysis by investment firm Goldman Sachs Group Inc.

Another outside analyst valued the total incentives in July, the peak of employee discount marketing, at $96 more than in July 2004.

Mark McCready, pricing director for the online car broker CarsDirect.com, a competitor with retail car dealers, agreed. Employee discounts, he said, "were just slightly better than what you could negotiate on your own before the deal."

U.S. automakers disagreed, but only mildly. "You'd have to be a pretty tenacious and successful haggler" to have matched this year's deals in 2004, said Ford spokesman Jim Cain. He called Ford's employee discounts "the best program we have ever offered."

Paul Ballew, a marketing analyst for GM-North America, said the savings were real.

"A consumer who bought a vehicle in June or July, their purchase price was lower than it would have been in April or May," he said.

"We think it's a great deal for our customers, and our sales have shown customers feel the same," said Chrysler Group spokesman Kevin McCormick,

Real or not, employee-discount campaigns, which GM initiated June 1 and Ford and DaimlerChrysler picked up a month later, moved huge numbers of cars off dealers' lots.

GM's June sales rose 41 percent over the previous June. For July, they were 15 percent higher than in July 2004. Ford's July sales were up 29 percent and DaimlerChrysler's up 25 percent. Overall, Americans bought a record 1.8 million new cars in July.

Market analysts say employee-discount plans helped a lot. Jesse Toprak, a senior analyst for car information Web site Edmunds.com, credited "the simplicity and no-haggle aspect" of the plans, as well as the dollar savings.

But how much did buyers really save?

By Toprak's company's calculations, automakers offered an average of $2,885 in incentives per car in July 2004. This July, the incentives averaged $2,981. That's $96 more.

Another way to put it: In July 2004, incentives such as rebates and discounted financing added up to an average 16.8 percent break on the manufacturer's suggested retail price, according to Edmunds.com's pricing analysis. The figure this year was within half a percentage point of 2004's, according to Toprak.

In effect, said Toprak, automakers "lowered their cash rebate and low APR spending and put the money they spent in these programs toward the employee pricing programs."

"Seen in this light," wrote Goldman Sachs analyst Ed McKelvey, "the employee discount program was an enormously successful marketing coup."

Domestic car sales remain strong in August but have slowed because inventories of 2005 models are running low and the discounts, in their third month, are beginning to lose momentum.

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