Incentives lethal to Detroit's share

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Detroit automakers must wean buyers off incentives, develop better products and take more risks to have a chance at halting a precipitous sales slide that has seen them lose share to Asian rivals.

General Motors Corp. and Ford Motor Co. lost market share again in January, continuing a troubling long-term trend for the domestic industry as it struggles to compete with surging imports. Ford`s share fell sharply to 17.4% at the end of last month vs. 18.9% in January 2004 and 20.8% in 2003, according to Automotive News. General Motors slipped from 26.4% to 26.2%.

"Detroit, for the most part, seems to be having difficulty understanding what the market wants," said Wes Brown, an analyst with auto consultant Iceology. "They spend millions of dollars on consumer research, but it's similar to how it was done 20 or 30 years ago."

That research, Mr. Brown said, is aimed at limiting automakers' risks since new products can cost billions. More successful carmakers like BMW and Nissan, he said, rely more on "gut."

Not incidentally, the domestic automakers lowered incentives in January from the prior month, according to online auto site Edmunds.com-with predictable results. In the past few years Detroit's unit sales have fallen when incentives were dropped.

Detroit has conditioned buyers to wait for some kind of deal on their cars and trucks, Mr. Brown said, which could explain why Ford's Five Hundred is off to a slow start (see sidebar, below).

Many of the brands sold by Detroit have seen their images tarnished, and it could take years for them to recover. Observers agree they need to produce better vehicles more consistently.

A U-turn

Chrysler Group was the only carmaker in Detroit to report higher U.S. vehicle sales last month, mostly on the strength of its hot Chrysler 300 sedan and sexy sibling, the Dodge Magnum sport wagon. That's a U-turn for the DaimlerChrysler unit, which was ailing a few years ago but has struck the right formula: attractive product at competitive prices. That strategy is attributed to Chief Operating Officer Wolfgang Bernard, who left to join Germany's Volkswagen last week.

Chrysler, moreover, has managed to lower its incentives in each of the last five months, from a peak of $3,778 last September to $3,185 in January, said Jesse Toprak, director-pricing and market analysis at Edmunds.com. The automaker pumped up its U.S. market share to 14.9% last month, from 11.9% in January 2003.

`the right road'

"Chrysler is getting on the right road and might be creating a blueprint strategy other Detroit carmakers can follow," said Susan Jacobs, president of auto consultancy Jacobs & Associates. Omnicom Group's BBDO, Troy, Mich., is Chrysler's lead agency. While both GM and Ford have new models in launch mode, it's too soon to call the winners and losers, observers said. The first model developed under GM's new product czar Bob Lutz has generally been a disappointment since it made its debut last fall.

"GM has come out with some much better products than the ones they're replacing, but the new models are not so different and they are not creating a lot of excitement," said Bob Schnorbuss, a director at auto consultancy J.D. Power & Associates. He predicted the Pontiac Solstice and sibling Saturn Sky, due in calendar 2006, would create buzz.

It will be up to marketing to make that happen. But GM has also recently faced a brain drain with two of its star marketers leaving in the past few months: Christopher "CJ" Fraleigh, general manager of Buick, Pontiac and GMC divisions; and Roger Adams, exec director-advertising and corporate marketing.

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