Chrysler Group Thursday said it was considering offering deeply discounted employee-level pricing on its 2006 vehicles ahead of the launch of its new Sebring, a revamped midsize sedan it expects to win buyers away from the dominant Japanese brands.
Chrysler plans to roll out an aggressive new discount program on its cars and trucks to clear out unsold 2006 models between July and the year-end, although a decision on terms of the promotion will not be made until next week, Chrysler Group President Tom LaSorda told reporters.
One option discussed with dealers is employee-pricing, he said, a move that would make Chrysler the first of the traditional Big Three to bring back the discounting strategy that defined a costly price war last summer.
“We’ve gone through a number of options that we will consider,” LaSorda said. “There is no final plan yet.”
Whatever form Chrysler’s discount plan takes, it is expected to put increased pressure on Ford Motor Co. and General Motors Corp., Chrysler’s larger rivals, to follow suit, analysts have said.
Employee-pricing could save consumers thousands of dollars on new car purchases since those prices are typically several percentage points below the standard dealer’s invoice.
Such discounting proved popular with car buyers when GM introduced it in June last year, forcing Chrysler and Ford to follow suit for July, August and September.
But investors have watched such sales programs with concern since they sacrifice profit margin for sales volume
Chrysler, a unit of DaimlerChrysler AG, has struggled with high inventory levels this year, prompting it to offer the richest consumer discounts of any of the U.S. automakers, particularly on its slower-selling trucks and SUVs.
Inventory costs up
At the end of May, Chrysler had a 77-day supply of vehicles in inventory, above the two-month supply that it has targeted as a more desirable level.
Although inventory is own from year-earlier levels, it is more expensive to carry because of higher U.S. interest rates, representing a major new cost for dealers.
Some Chrysler dealers chafed at earlier company programs that offered them incentives to take on more slow-selling minivans and SUVs from the company, a concern LaSorda said the company would address with its upcoming promotion.
“Moving at retail — that’s the focus. What dealers didn’t like was when we moved at wholesale,” he said.
In the first five months of the year, DaimlerChrysler U.S. sales were down 1 percent — better than the steeper declines recorded by GM and Ford, but far short of the gains of almost 9 percent recorded over the same period by Toyota Motor Co. and Honda Motor Co.
New cars in second half
Chrysler’s strategy this year relies heavily on the launch of eight new models, including the all-new Sebring, slated to arrive in showrooms in the third and fourth quarters.
Although the Dodge Caliber has been a sell-out hit for Chrysler, with only 11 days of inventory, the lack of other new models made sales tough in the current quarter, LaSorda said.
“There is no doubt that April and May were difficult months for us,” he said, adding that he expected sales momentum to pick up with the new launches. “You’ll see a much better reaction to the new vehicles.”
One of the most significant of those is the revamped Sebring, which Chrysler officially unveiled on Thursday.
The Sebring is key because it completes Chrysler’s redesigned car line-up, fitting between the compact Caliber and the 300C sedan.
It also comes as automakers scramble to come to terms with the increased importance of fuel economy for U.S. consumers, and Chrysler said a Sebring equipped with an entry-level 2.4-liter engine would get 31 miles per gallon on the highway.
Chrysler’s sales now are dominated by trucks, minivans and SUVs, which account for 77 percent of the total, LaSorda said.
But LaSorda was confident that the Sebring, which features a navigation and entertainment system and cup holders that can heat and cool beverages, would steal sales from both the Toyota Camry and the Honda Accord.
The new sedan, which will begin selling in volume in the fourth quarter, will be priced “well below” those dominant Japanese brands once final pricing terms are set, he said.
“You can go to the bank on that,” he said. “That’s going to be a well-priced vehicle so we can take some share away.”
Other midsize cars include the Ford Fusion, launched last year, and the Chevrolet Malibu. “The market is huge. All we have to do is take a little bit from everyone,” LaSorda said.