Big Three Automakers All Offering 'Employee Discount'

Paul Eisenstein, publisher of the online magazine The Car Connection talks about the heavy discounts currently being offered by all three of Detroit's automakers. Eisenstein says the deals vary, and sometimes aren't preferable to what was offered before the employee discounts.

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STEVE INSKEEP, host:

Next we're going to check up on American auto companies' efforts to recover some of their customers and maybe even get new ones. Car buyers can now get an employee discount from all three of Detroit's automakers. To talk about what that means we've called automotive analyst Paul Eisenstein.

Good morning, Paul.

Mr. PAUL EISENSTEIN (Editor, TheCarConnection.com): Good morning.

INSKEEP: So now GM started this Employee Discount program in June, Ford and Chrysler followed. How's the promotion going?

Mr. EISENSTEIN: Phenomenally, June was a huge boom month for GM, just about cleared out dealer lots. I'm not sure where they're getting all the cars right now, but they're up something like 42 percent so far in July. And Chrysler and Ford are doing pretty close behind.

INSKEEP: It sounds good to get an employee discount, but is the price really any better than what was being charged before?

Mr. EISENSTEIN: I'll give you the hard answer of yes and no. In most cases, yeah, the deals are pretty spectacular. In some cases, you're getting as much as $10,000 off the retail price. But not all deals are as good. Now take the Ford Taurus, the discounts are actually a few hundred dollars less than they were with the incentive programs that were running before the employee plan.

INSKEEP: Now this came--now these deals came at a disastrous time for the automakers, especially for General Motors. Are they making any money now that they're selling the cars this way?

Mr. EISENSTEIN: Yeah. GM was down more than 2 points of market share when they launched this program. They were in pretty bad shape. Chrysler actually has had increases in sales, so they were dragged into this kicking and screaming, but they were losing share once GM offered the programs. The manufacturers aren't making as much money as they might if they were selling this type of volume otherwise. But the ones that are really taking the hit are dealers who have to cut back their margins quite sharply. And the question is whether the manufacturers are going to increase productivity, increase factory output to fill up the lots that are being emptied out with this. Remember they book their profits when they ship cars from the factory, not when the dealers sell them off the lots.

INSKEEP: Is anybody in this sale chain actually selling cars at a loss?

Mr. EISENSTEIN: Dealers are probably taking a big hit. In some cases they're getting almost no profits out of the deal, and interestingly enough, these deals are actually hurting some of the Japanese manufacturers because even though they're not offering these big deals, they have to cut their prices a bit. Their dealers are having to really compete and that's cutting their profit margins hugely.

INSKEEP: So it's a very competitive moment for the auto industry. How much longer can this keep up?

Mr. EISENSTEIN: Well, I don't think many people expect that the domestic manufacturers are going to maintain this much longer. This is pretty much an end-of-the-year clear out of these 2005 models. Whether they would continue any sort of employee programs into the 2006 model year is unlikely, but with the competitive situation right now, it looks like they'll probably have to come up with some other huge deal even then.

INSKEEP: Which raises a question: Are there fundamental problems for some automakers that are going to cause sales to collapse as soon as these bargains go away?

Mr. EISENSTEIN: Well there's this thing called `pull-ahead' and that's what everybody is watching. You know, there are people out there who are trading cars that they might not have wanted to get rid of until as late as December, even maybe next year. And what happens when they pull ahead all these buyers will Detroit see a huge collapse in sales when these programs end? That's a very big possibility. So later this year Detroit, could be in serious trouble.

INSKEEP: Paul, thanks very much.

Mr. EISENSTEIN: Good to be with you.

INSKEEP: Paul Eisenstein is the publisher of the Internet magazine, TheCarConnection.com.

This is MORNING EDITION from NPR News. I'm Steve Inskeep with Renee Montagne.

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