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Detroit's Challenge: Weaning Buyers from Years of Deals

January 6, 2004

To get through the shaky economy of the last two years, carmakers loaded on perks, ranging from zero percent financing to hefty cash rebates -- and consumers got hooked on them. Now, according to The Wall Street Journal (WSJ), car companies face a huge challenge: weaning consumers from all those discounts.

It won't be easy, according to the WSJ. In 2003, rebates for some models rose to their highest levels in years. The average cash rebate from Chevrolet was $3,231 in 2003, nearly double

2001's $1,654 average giveaway. Ford's average rebate: $2,752, more than double its 2001 average of $1,334. Buick, Dodge, Lincoln and Mercury all

gave average rebates of more than $3,000 in 2003.

Consumers have come to expect these deals. Although automakers raised sticker prices to offset some of the rebate costs, most have had to sacrifice profit margins, according to the WSJ.

Profits at General Motors Corp.'s North American operations averaged just $184 a car through the first nine months of 2003, down from $555 a car in the same period of 2002.

The Big Three are trying to break away from the heavy discounts, the Journal said. Executives at GM, Ford and Chrysler say an

improving economy should allow them to ease off incentives, though they don't expect to abolish them altogether. "I suspect we'll be having incentives in some form for the rest of our lives," says Richard Wagoner, GM's CEO.

In some cases, dealers say, rebates were the only way buyers could finance a new car. Auto companies are betting on blitzes of new cars and trucks to entice consumers to buy without

huge giveaways, according to the WSJ.

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