Chrysler to offer new discounts in July to clear glut

Chrysler Group, a unit of DaimlerChrysler AG, will roll out a new program of discounted vehicle pricing in July in a move intended to clear an overhang of unsold 2006 models, the company said on Wednesday.

Automotive News, an industry trade journal, quoted dealers and other unnamed industry representatives who had been briefed on the plan as saying Chrysler would become the first of the Detroit-based automakers to offer employee-level pricing at the peak of the busiest sales season.

That would mark an escalation of the brewing price war in U.S. auto showrooms and put increased pressure on Ford Motor Co. and General Motors Corp., Chrysler's larger rivals, to follow suit, analysts said.

It could save consumers hundreds or even thousands of dollars on new car purchases since employee-level pricing is typically several percentage points below the standard dealer's invoice, one analyst said.

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 and Wall Street analysts have watched such sales programs with concern since they sacrifice profit margin for sales volume and force consumer attention back to cut-rate deals, a move seen as tarnishing U.S. auto brands.

A Chrysler spokesman confirmed that the company was readying a new sales promotion program to become effective on July 1, but declined further comment. The details have not been locked down and finalized yet, Chrysler spokesman Kevin McCormick said.

INCENTIVES

Chrysler 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.

The reliance on customer rebates and incentives cut Chrysler's first-quarter earnings by more than half.

At the end of May, Chrysler had a 77-day supply of vehicles in inventory, the company has said, above the two-month supply that it has targeted as a more desirable level.

In May, Chrysler announced a zero-percent financing offer for new car and truck buyers, and also asked dealers to take more vehicles for both May and June.

One analyst said employee-level pricing would be a natural extension of Chrysler's efforts so far this year to generate showroom traffic and reduce its reliance on less profitable sales to rental-car agencies and commercial fleets.

All the signs pointed to them putting on a new discount program, said Jesse Toprak, an analyst with industry tracking service, Edmunds.com. I think Ford will be first to retaliate, rather than GM, just because of their own excess inventory and lack of new product.

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.