U.S. automakers are abandoning customer rebate programs, the cash payments of $200 to $2,000 per car that they have relied on to cope with the worst sales slump in two decades.
The rebates paid to buyers by the companies will stop with the end of the current model year this fall. The companies say they may continue to provide assistance to dealers, who can use the money to make smaller "dealer" rebates.
But the industry has concluded that direct auto cash rebates, which have added an estimated $1 billion to industry costs since Jan. 1, 1981, are not worth the cost, officials said.
"We're going through a weaning process. We're trying to get people off this dope. And the best time to do that is now, at the tail end of the current model year," said Philip E. Benton, vice president for sales operations at Ford Motor Co.
The rebates have conditioned customers to expect givebacks when they buy cars or trucks. That expectation has led to a kind of cat-and-mouse game between customer and manufacturer that has created more instability in an already unstable market, U.S. auto manufacturers and industry analysts say.
"Rebates do not make us money. They cost us money. If we could make money by giving away X numbers of dollars on a car, we might as well cut the price of the car," said Benton, whose company is the second largest U.S. automaker.
Similar comments came from officials at No. 1 General Motors Corp., No. 3 Chrysler Corp. and No. 4 American Motors Corp. All have frequently used customer rebate programs in the last two years. All now say they do not intend to use rebates in the new model year.
"No dealer or manufacturer can continue indefinitely with this sort of thing," said GM spokesman Harold Jackson. He said rebates have caused "erratic, roller-coaster sales that interfere with production planning."
Robert D. Lund, GM's chief vice president for sales, said, "We are planning no other reduced retail financing rate activities or passenger car rebates to customers" after the 1982 model year.
"Sales incentives," such as GM's now-defunct program providing 12.8 percent interest rates on new car financing, have been used at times in conjunction with the cash grants.
Analysts say, and figures support the contention, that the rebates and incentives have improved sales. But the fix has been of temporary and mostly minor aid to the severely damaged fortunes of the domestic auto industry, according to industry officials.
For example, June was the first full month without cash rebate programs. It also was the first month after GM, which has about 60 percent of the domestic passenger car market, ended its popular financing plan. June domestic passenger car sales fell to a seasonally adjusted annual rate of 4.9 million units, down from an annual adjusted rate of 6.3 million in May.
That short-term result argues that the rebate programs may have improved May sales at the expense of June results.
Analysts point out that even with the rebates and GM's low-rate financing plan, 1982 car sales are not expected to be much improved over 1981, when U.S. producers sold only 6.2 million cars, the most dismal result in 20 years. Today, sales are running at a seasonally adjusted annual rate of 5.2 million cars.
"The industry would be better off trying to stabilize prices at a lower level than it is trying to sucker people into showrooms with a deal, only to have sales come crashing down again when the rebates drop off," said David Healy, auto industry analyst for New York-based Drexel Burnham Lambert Inc.
Arvid Jouppi, a Colin Hochstin Co. analyst in Detroit, agreed. He said U.S. auto companies "have spent $1 billion since Jan. 1, 1981, in an attempt to lure consumers back into the market place, and they have succeeded only moderately." A rebate program "in a way is strategic retreat, an admission that the cars were priced too highly in the first place."
There is some grudging agreement with that statement. AMC, for example, "has no rebate program in effect at this time," largely because "we've gone to a program of realistically pricing the vehicles at the beginning," said AMC marketing spokesman John McCandless.
That does not mean AMC's prices, or those of other automakers, will be lower in the new model year. Nor does it mean that customers have seen the absolute end of rebate programs. "I would never say 'never,' " Benton said. "But we're going to try to go 'cold turkey' on this thing. A rebate is a sign of sickness. All we need is a reasonably healthy recovery in the economy, and we can get off this stuff."