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GM Rekindles Incentive Fires


General Motors, bolstered by big sales gains in December, has launched another round of incentives to the dismay of both analysts and rivals.

In response, both incentive-dependent Chrysler Group and Ford Motor Co. are now poised to announce a new round of incentives this week, although they had been hoping for a small pullback after the cost of rebates, cut-rate-loans and other promotions had soared in December.

Paul Ballew, GM general director of analysis and market research, told reporters and analysts during a conference call that GM was going to continue to use incentives to bolster its position in what is a very competitive market.

GM has now gained market share for two consecutive years for the first time since 1976 and isn't about to reverse course, he added. GM finished 2002 with a market share of 28.4 percent. During December, in fact, GM's market share reached 32 percent — its highest level since April 1998, only weeks before a devastating labor dispute with the United Auto Workers crippled the company's production system.

New incentives

The new incentives from GM include both cash rebates and cut-rate financing in a retail marketing initiative that covers most 2003 model-year vehicles. Effective through Feb. 28, GM is offering customer cash rebates of up to $3,000 on most Buick, Chevrolet, GMC, Oldsmobile and Pontiac 2003 models, GM officials said.

GM also will continue to offer zero-percent financing rates for qualified buyers on most '03 passenger car models. Only Cadillac, Hummer and Saab models along with the Chevrolet Corvette are excluded from the latest offer, GM officials said.

In a move that set analysts buzzing, the new package included rebates on some of GM's newest vehicles such as the Saturn VUE and Pontiac Vibe. In addition, GM also announced plans to extend loan repayment periods on some of the cut-rate loans offered on several vehicles, such as the new Saturn VUE and Pontiac Vibe to 72 months. The extended loans also are being offered on vehicles such as the Saturn L-Series, Chevrolet Cavalier, S-10 and Pontiac Sunfire.

Ballew acknowledged GM has not offered six-year terms on new vehicle loans in the past but noted GM was not the first automaker to offer the 72-month loans during the current cycle. Ford Motor Co., which has boosted extensive rebates in December, also has been offering 72-month terms on some models since last fall, analysts said.

Jim O'Connor, Ford group executive for North American Sales, Service and Marketing said the rebates clearly helped the company increase sales last month. Overall Ford's sales increased 26 percent in December; sales of Mercury and Lincoln brand vehicles, which had lagged throughout 2002, increased even more. Ford, however, spent about $400 to $500 less in incentives per vehicle sold than GM, O'Connor said.

Building momentum

John Smith, group vice president of GM North America vehicle sales, service and marketing, said the new incentive program will allow GM to build on its current sales momentum.
"Our marketing program in January will remain strong and encourage shoppers to see for themselves the great value in GM's broad lineup of new cars and trucks," Smith said.

Ballew added it is important for GM to set the tone in the marketplace. "I think people have been shocked by a GM that's been aggressive. The simple message is that we're back. People can throw slings and arrows at us but the results are positive," Ballew said.

The move dismayed analysts. "I think the industry is on a terrible treadmill," John Casesa, an analyst with Merrill, Lynch told The New York Times. In addition, Goldman Sachs issued a new advisory, that suggested GM's heavy spending on incentives could have pushed the automaker into the red by as much as $115 million during the fourth quarter. Ballew said GM would talk about earnings when it issues its year-end financial report later in January.

Executives from the Chrysler Group and Ford have complained repeatedly about the high level of incentives, but both of GM's rivals have used them extensively for the past two years to boost sales.

"I don't think any body is going to back off. The bottom line is we have to be competitive, but we're not going to lead the industry in spending," said Gary Dilts, Chrysler Group vice president for sales.

Chrysler chose not to match GM and Ford incentives spending in December and still managed to eke out a 1-percent increase in sales, Dilts added. But sales of some Chrysler Group vehicles, such as minivan and PT Cruiser, did suffer last month.

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