|SOURCE: JEEP DEALERS|
Chrysler wants to raise credibility with shoppers by offering more realistic sticker prices. The financially troubled company also wants to boost sales.
But the new prices cut some dealer discounts, which squeezes dealer profits and leaves little room for price negotiation with customers.
"Jeep Liberty is very competitively priced, but there isn't much margin for the dealer — there is no negotiating with that product at all. You have to make your profits in other areas and sell more volume," said Joe Dawson, owner of Polo Jeep in Muncie, Ind.
The new prices are an attempt to avoid the "sticker shock" that many potential buyers have felt walking into the group's showrooms, said James Schroer, executive vice president of sales and marketing.
The company's profits on each sale will not change, he said.
Some of the entry-level vehicles have been decontented, said Thomas Marinelli, head of the Chrysler/Jeep division. Chrysler executives would not provide details because final 2002 prices will not be released until early September.
"We have cut prices on 75 percent of our vehicles," Marinelli said. "We were priced a bit too high and dependent on incentives."
Ken Zangara, owner of Zangara Dodge in Albuquerque, N.M., said the 2002 base Dodge Neon likely will cost under $11,500, including freight. The base 2001 Neon costs $13,205, including freight. "We're going to try to become more of a presence in an entry market, but I'm not sure how much they will decontent the cars with the downward pricing action," he said.
The cut on the 2002 Grand Cherokee Laredo, about $2,000, will price the entry-level sport-utility at $27,995, including freight, according to Dawson.
He said Jeep will add a fully loaded model called the Overland to the Grand Cherokee range to compete with the Ford Explorer Eddie Bauer model and price it at more than $37,000, including freight.
"They have repositioned all the Jeep lines and cut our margins. I can't say how much yet, but on average they are slimmer. We only have a margin of 5.7 percent on the Liberty and about 9 percent on the Grand Cherokees," Dawson said.
Chrysler group dealer discounts are typically 11 percent of sticker prices.
Dealers are nervous there will be similar cuts in margins of other products, said Jerry Bowman, chairman of the Chrysler dealer council and owner of Stuart-Bowman Auto Centre, in Asheboro, N.C. "We support the strategy of reducing content, but if our margins are drastically reduced, there could be a problem," he said.
Can't avoid incentives
The pricing strategy doesn't mean the Chrysler group can totally avoid incentives. Last year, the group tried to exit the incentive game, but none of its competitors followed.
"We are trying to avoid putting in excessive incentives and trying to keep our products price sensitive," Schroer said.
The Chrysler group's incentives are among the highest in the industry. In July, Dodge alone offered about $2,371 in customer cash and other incentives, according to CNN Marketing Research.
Grand Cherokee incentives are even higher. In the Southwest district, which ranges from Texas to Kansas, consumers received $2,500 in rebates and dealers got up to $1,750 per vehicle, said Van Grey, director of the Chrysler group's Southwest Regional Business Center.
According to Dawson, returning lessees got up to $6,000 financing incentives on the Grand Cherokee. "When they put those huge incentives in, they realistically reduced the manufacturer's suggested retail price of the vehicle, he said. "It was almost fait accompli.
"No one knows how those new prices will affect the 2001 trade-in value."
The Chrysler group's high incentives hurt its image because the offers create a "fire sale" atmosphere, Schroer said. Because the manufacturer's suggested retail price is too high, the brands piled on high incentives. When the high rebate offered was explained, a different psychology set in.
Rather than consider the vehicles a good deal, some consumer wondered whether the group was pushing "a bad product," Schroer said. The 2002 prices will help the brands "better manage the amount we spend so that it is seen as a good deal," he said.
"We are trying to avoid putting on excessive incentives and to keep our products price sensitive," he said.
Step up pricing
The 2002 range will offer what Schroer calls "the value model" in some lines, a vehicle that is handsomely equipped but without "all the bells and whistles."
"We also have the Limited for the 'everything' buyer," he said.
Dealers said this approach worked with the EX versions of the Dodge Caravan and Chrysler Town & Country minivans, Internet models launched in March that are aggressively priced with no incentives. But dealer discounts on the EX were cut from 13 percent to 11 percent.
Said Bowman: "There is no room for maneuvering, and that makes some dealers nervous."