The Chrysler group's per-vehicle operating profit fell 76 percent in the fourth quarter of 2002 compared with the third quarter as the company boosted incentives to fend off General Motors.
"There was a big step upward in marketing costs in the fourth quarter that is completely related to the extraordinary aggressiveness, especially of General Motors," said Juergen Schrempp, chairman of DaimlerChrysler, in a conference call with analysts last week in Germany.
Schrempp said the incentive wars will continue, but new vehicles such as the Chrysler Pacifica and Crossfire will help Chrysler lower marketing costs.
GM CEO Rick Wagoner has said he will continue the rebate wars because they help GM gain market share and profits.
Schrempp is forecasting only a slight increase in market share for the Chrysler group in 2003.
In the fourth quarter, the Chrysler group altered its marketing strategy to combat GM. It accepted a markedly lower per-vehicle operating profit - $124 in the fourth quarter compared with $524 in the third quarter - and pushed into leasing, the financial data show.
U.S. marketing costs for the Chrysler group as a percentage of revenue hit a whopping 23.6 percent in the fourth quarter of 2002, seven percentage points higher than the third quarter.
The company also turned to leasing to fight GM.
In the fourth quarter of 2002, 17.3 percent of the Chrysler group's U.S. retail transactions were leases, seven percentage points higher than the third quarter.
Despite the higher incentives and leasing, the company's U.S. vehicle supply climbed to 75 days in the fourth quarter of 2002, seven more days than the third quarter.
Chrysler group sales fell 14.1 percent in the fourth quarter to 481,587 units from the fourth quarter of 2001.
The Chrysler group does not release production forecasts.
But last week the company said its first quarter vehicle build would fall below the 670,856 units built in the first quarter of 2002.