Price War for Automakers

Ford follows GM's lead in offering employee-style discounts.
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A price war could wreak further havoc on profit margins in the auto industry as

General Motors

(GM) - Get Report

elected to extend an aggressive incentive program, forcing its competitors to slash prices in concert.

GM extended Tuesday the deadline for its "Employees Discount for Everyone" program for another month to Aug. 1. The company began the promotion one month ago, allowing customers to buy automobiles at discounted prices normally reserved for its employees. As a result, GM's sales rocketed 41% in June, giving the world's largest retailer its best sales month in 19 years.

In response to the extension,

DaimlerChrysler

(DCX)

and

Ford

(F) - Get Report

will begin incentive programs of their own as Asian automakers continue to steal market share from Detroit's Big 3.

Ford said late Tuesday it will offer employee pricing to the public on its 2005 models, except the Mustang, Escape hybrid and GT, starting July 6 and running to Aug. 1. Chrysler said it will unveil its own discount deal by Wednesday.

While GM's early success with its promotion provided a much-needed shot in the arm for the flailing automaker, widespread discounting in the industry could ultimately hurt the group by whittling down profit margins.

Ford, whose domestic sales fell 2.5% in June from a year ago, has watched its sales fall for 13 consecutive months. Chrysler's U.S. sales were up 1.1% in June, but it still suffered from competitive threats.

Toyota

(TM) - Get Report

reported its best-ever June on a 10% sales increase.

Nissan's

(NSANY)

sales increased 14.2%, and

Honda's

(HMC) - Get Report

sales were up 4.7% for the month.