Detroit Brings Back Rebates

All the Big Three try cash discounts to help move cars

Auto dealers have spent most of their time since the introduction of the new models last October whistling in deserted showrooms. But despite persistent complaints about high sticker prices, and a sales debacle that is heading into its third year, General Motors and Ford staunchly refused to offer cash rebates. Said then General Motors Chairman Thomas Murphy less than three months ago: "In the final analysis, I don't think rebates are a good way to stimulate the market."

Last week, however, General Motors put aside its pride and policy and began offering discounts. Ford, which last week declared a loss of $1.5 billion in 1980, a record for a U.S. corporation, followed within an hour. The two companies announced that they would make cash rebates from $500 to nearly $1,800 a car.

GM and Ford had to face one undeniable fact: even once popular fuel-efficient small cars are not selling. At the beginning of February, Chevrolet dealers had a 98-day supply of compact Citations, and Pontiac showrooms were backed up with 92-day inventories of the small front-wheel-drive Phoenix. Ford dealers were stuck with 100-day-plus backlogs on nine separate models ranging from the Mustang and Fairmont to the Mark VI. Sixty-day levels are considered ideal.

General Motors and Ford were forced into cash payments in part because of struggling Chrysler's success with "floating" rebates. The payments, which are tied to the prime interest rate and average about $400 a car, were begun in early December. Since then, Chrysler's share of the domestic auto market has jumped from 8.5% to more than 10%.

Chrysler is now seeing some other favorable omens. The Government appears ready to give final approval for another $400 million in guaranteed loans, if a handful of bankers do not object. Also the company's drastic cuts in plant, overhead and labor costs are beginning to pay off. During the past 18 months, Chrysler has reduced the number of vehicles it must sell each year to make a profit from 2.4 million to 1.2 million.

The decision on rebates stirred deep emotions in Detroit. Automen do not like them because they cut into profit margins, probably without helping sales in the long run. The cash payments often give sales a lift during the rebate period because customers advance their plans to buy cars in order to get the special prices. But sales are then usually lower than normal after the rebates end.

The cash payments are more controversial than ever this year. Unlike 1975, when industry-wide rebates were last offered, this time hard-pressed dealers are being asked to bear some of the cost. For example, buyers of Oldsmobile Cutlass Supremes and Buick Regals will get $700 back--$400 from GM and $300 from the dealer. Ford's rebate plan, which ranges from $610 for a Fairmont to $1,769 on the four-door Mark VI, is similar.

Nonetheless, Detroit hopes that the rebate plans will kick off a spring sales surge and help soften consumer resistance to the high prices on 1981 model cars. A recent survey of car sales in southern Ohio by Chevrolet Dealer Ebb Glockner concluded that buyers were balking at paying more than $7,600 for a car.

The decision by GM and Ford to introduce rebates puts Chrysler in a dilemma. The company had hoped to stop its discounts, which have cost the firm up to $25 million a month in reduced revenues, at the end of February. Now it is certain to continue cash payments in some form. Said Chairman Lee lacocca last week: "I had hoped that they would leave the market to us for a while, but they didn't. We can't go off the dope [of rebates] cold turkey, or we'd die."

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