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Light truck incentives rise
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November 17, 1999: 1:01 p.m. ET
Coupons by Ford, minivan incentives by Chrysler defend share in strong sector
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NEW YORK (CNNfn) - Ford Motor Co. and DaimlerChrysler AG are raising incentives on traditionally strong light truck products, but automaker officials and analysts do not believe it is enough to spark an incentive war in the industry's most profitable segment.
"I don't see this as resulting in anything dramatically negative," said Rod Lache, analyst with Deutsche Banc Alex. Brown. "Over time, you'll see incentives rising everywhere. But it's not anything scary yet."
In the pick-up truck segment, Ford (F) is sending $500 coupons good on purchases of its F-series small pick-up trucks to 900,000 current pick-up owners. But Ford, DaimlerChysler (DCX) and General Motors Corp. (GM) don't have any across-the-board incentives on the popular pick-up trucks right now.
Ford officials tried to downplay the pick-up coupon program, saying it was a "non-event" in terms of overall pricing in the segment.
"It's a very targeted mailing and an attempt to reach consumers in a very targeted way," said Carolyn Brown, director of marketing sales and service public relations at Ford. "We do a lot of these things that we don't talk about publicly. It's just an experiment."
Ford has seen some loss of market share in light pick-ups to GM's new Sierra and Silverado line, said Lache. He agrees the Ford coupons aren't enough to start incentives climbing in a way to hurt any of the manufacturers' bottom lines.
GM officials said that its incentives in the small pick-up are very targeted as well, such as on standard cab V-6 products, as opposed the popular extended cab products. They said they're not surprised by the Ford coupon offer, nor do they expect to have to respond in kind.
"We have been anticipating the competitive response from Ford would be forthcoming," said Paul Ballew, general director of industry analysis for GM. "They do surface every now again. I wouldn't say it's revolutionary."
DaimlerChrysler, long the leader in sales of minivans, upped its incentives on them by 25 percent to $1,250 as of Nov. 5. U.S. automakers seem much more likely to follow Chrysler's lead, although no one seems to be predicting the $2,000 to $3,000 incentives common for cars in the current market.
But Ballew said that the minivan market has been much more competitive than pick-up truck market and likely will get even more competitive in 2000. The Big Three are battling the strong recent entry in the field by the Honda Odyssey and the Toyota Sienna.
"There hasn't been a lot of upside growth for that entire segment," he said. "It's not like sport utility or pick-ups, where we had a growth and everyone can sell whatever they can make. You added more players, more capacity into segment."
"I can't tip my hand on our strategy moving forward," Ballew said when asked about GM incentives on minivans, "But we will stay competitive. Chrysler has generally set the pace there."
Ford's Windstar minivan now has $1,000 incentives, and Brown said the company has no plans at this time to raise that incentive level.
Chrysler officials say their company had full capacity utilization for its minivans last year, with 607,000 sold in model year 1999. Its market share for minivans remains at 40 percent. But they admit that the new designs from competitors such as Honda have prompted the increase in its minivan incentives.
"We're ending (the) life cycle of this vehicle. There are newer entries," said Rick Deneau, spokesman for the company. "It is a very competitive segment, no question about it. We're still the market leader and we're going to defend that."
Deutsche Bank's Lache said even with the increased incentives, the industry is seeing profits rise, both because of increased productivity and stronger initial pricing.
"It look like incentives are going up, but net pricing is not changing," he said. "You can see evidence of that in the producer price index for new cars. It showed the largest increase in nine years."
He has a buy recommendation on GM and Ford and a neutral recommendation on DaimlerChrysler due to what he sees as a relatively weak new product mix in 2000.
Ford's stock was down 1-3/16, or 2.2 percent, to 53-7/16 in midday trading Wednesday, and GM's stock was also off 1-3/16, or 1.6 percent to 71 5/16. But the American Depository Receipts of DaimlerChrysler were up 7/16, or 0.6 percent, to 73 9/16.
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