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Chrysler Cuts Prices to Boost Sales Volumes

August 30, 2001

The Chrysler division of DaimlerChrysler AG announced on Aug. 30 it is cutting prices on its 2002 models to spur sales -- and also to take a first small step back from ever-increasing incentives.

Chrysler, along with General Motors Corp. and Ford Motor Co., had been forced to increase cash rebates, low-interest loans and other incentives on most of its models to keep sales running this year as the U.S. economy slowed and foreign automakers stepped up their roll-out of new models.

Detroit's Big Three automakers averaged more than $2,300 per vehicle in incentives at the end of July, with Chrysler spending $2,629 per new car and truck, while Asian competitors averaged almost $1,000 less at $1,356, according to industry estimates. Even while incentives rose, sales at Chrysler were down 9.5 percent through July.

Incentives and competition have reduced new-car prices in the United States at an average annual rate of 0.7 percent between 1996 and 2000. Some analysts expect that trend to accelerate in the next few years, with price cuts hitting 1.5 percent annually.

Chrysler said its price cuts for 2002 models would average about 0.9 percent, or about $199, adjusted for options added in or taken out of various packages. Some models received much larger cuts of $1,200 to $2,000, while a few actually increased in price.

According to Chrysler, the company will pay for the cuts through higher volume and the cost-cutting efforts underway as part of its $4 billion restructuring plan. Most of the cuts do not come from stripping options from new models, according to the company.

Cash rebates and other incentive offers would continue on Chrysler and Dodge models, but the price plan would be used to cut rebates on Jeep vehicles, according to company officials, who maintain there is little risk the plan will end up hurting the company's revenues.

One of the main goals of Chrysler's price cuts is to boost its appeal to the 60 percent to 70 percent of its shoppers who compare prices on Internet car sites such as Microsoft Corp.'s CarPoint and Edmunds.com.

Most sites list rebates and other incentives separately from sticker prices. While Chrysler's vehicles had larger incentives, prices that were $1,500 to $2,500 higher than direct competitors turn off buyers instantly, according to company officials.

The Jeep Grand Cherokee sport utility vehicle will get a $2,000 price cut, but its incentives will be reduced as well. The Wrangler SUV will use a similar strategy.

In addition to the price cuts, Chrysler says it will step up its advertising over the next few months to rebuild its brands with consumers.

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