Interesting.Zetsche criticizes Toyota's pricing
Chrysler CEO says incentives aren't shrinking prices
January 13, 2005
BY SARAH A. WEBSTER
FREE PRESS BUSINESS WRITER
Take that, Toyota.
While General Motors Corp., Ford Motor Co. and Chrysler Group take most of the heat for offering fat incentives on cars and trucks that arguably eat into profitability, Chrysler CEO Dieter Zetsche on Wednesday accused Toyota Motor Corp. of giving away the best deals on new vehicles.
"We believe Toyota has been the leader in negative net pricing," Jason Vines, Chrysler's vice president of communications, added.
Net price is the sticker price of the vehicle minus incentives such as cash-back rebates and other discounts. In simpler terms: It's the price the consumer actually pays for the vehicle. Sometimes it's called the transaction price, and it's a critical measurement to follow because automakers need to bring in as much money per vehicle as possible to improve their bottom lines.
Vines said Toyota has been adding more standard features to vehicles without raising prices, meaning buyers are, in effect, paying less for more. And that's no different than offering a big discount.
Toyota disagreed with Chrysler's assertion.
"Our transaction prices have certainly not gone down," said Toyota spokesman Mike Michels. He said the company's internal data and information from the Power Information Network show it was able to increase prices slightly last year.
Despite that, Vines stood by Chrysler's findings. He said they were derived from "a variety of sources."
Meanwhile, the consumer Web site Edmunds.com seemed to support Chrysler. Data there showed that prices on Toyota's vehicles remained flat between 2003 and 2004, but GM, Ford and Chrysler were able to get between $700 and $1,110 more per vehicle on average.
During a conference Wednesday in Dearborn for automotive analysts, Zetsche noted that domestic automakers are performing admirably on pricing. All of them were able to raise transaction prices last year.
That performance was despite their offering deals that averaged $4,214 per vehicle at GM, $3,541 at Ford and $3,795 at Chrysler, reports Autodata Corp. of Woodcliff Lake, N.J. It's one of several independent research firms that estimate cash-back rebates, discount financing and other bonuses because automakers do not release the data publicly. Together, the domestic automakers spent an average $3,911 per vehicle on the deals, a collective increase of 12 percent over 2003.
Those high numbers typically cloud the image of the domestic automakers because they make it appear the companies are giving vehicles away on the cheap.
Meanwhile, Asian automakers often come off looking rosy to investors for offering much smaller deals. Modest incentives make it seem their prices are holding up better. Toyota, for example, offered an average incentive of $852 per vehicle last year, Autodata reports. That's not only about 20 percent of the average incentive GM offered, it's a 5-percent reduction from the average incentive Toyota offered in 2003.
Toyota has been able to get away with that reduction by quietly adopting a more shrewd pricing strategy: Put more standard features on vehicles rather than offering them as optional equipment, then lower the sticker price or keep it the same. That way it doesn't have to offer a discount.
But while Toyota's pricing strategy might have helped the Japanese automaker attract more buyers -- Toyota sales were up 10.4 percent in 2004 compared to 2003 -- it caused the company's overall transaction prices to fall last year, Chrysler maintains. If true, that means Toyota brought in less revenue per vehicle than in 2003.
A graphic Zetsche presented to the analysts showed Chrysler in the most favorable position and transaction prices increasing along with retail market share. The presentation went on to show transaction prices increasing at GM and Ford but their market share declining.
But the surprise in the report was that Toyota posted a large market-share increase and a small decrease in net pricing.
Still, it is doubtful that the decrease hurt Toyota, considering the improvement in sales volume. Toyota's share of the U.S. market grew to 12.2 percent in 2004, up from 11.2 percent in 2003.
Domestic automakers have been eager to demonstrate that incentives are only part of the pricing war in the automotive market and that their prices aren't suffering as much as discounts might suggest