Chrysler puts '06 vehicles in used lots.

Automaker allows dealers to add deep discounts in effort to unload cars and trucks.

Josee Valcourt / The Detroit News

In a last-ditch effort to unload 2006 cars and trucks, Chrysler allowed its dealers to designate the new vehicles as "loaners" for as little as one day before selling them as used for steep discounts.

The unusual sales tactic came at the end of May as the Auburn Hills-based division of DaimlerChrysler AG was trying to finish the month on a strong note.

Chrysler, Dodge and Jeep dealers can use new vehicles as loaners for test-drives or for customers who need a car while theirs is in service.

In the past, dealers have had to use a vehicle as a loaner for three months before selling it as used. Slicing that requirement to one day allowed Chrysler to count the vehicles as retail sales while dealers were able to move the outdated cars and trucks out of their new car lots, where they might dampen interest in newer models.

The program, outlined to dealers in a memo obtained by The Detroit News, offers a glimpse into the lengths Chrysler and other automakers will go to sell aging inventory in a competitive market.

A glut of '06 models

Chrysler overbuilt 2006 model year vehicles last year rather then cut production. The excess vehicles -- often parked in lots around Metro Detroit -- were a major source of friction between Chrysler and its dealers, who balked at ordering extra inventory they feared they could not sell.

Chrysler used huge discounts to get rid of most of the excess 2006 models late last year and continuing this year. The loaner program provided a way to get rid of some of the last models languishing on dealer lots.

"It's a good way to dispose of some things that we needed to get rid of," said Ken Zangara of Zangara Dodge in Albuquerque, N.M.

Chrysler offered dealers $2,000 on top of existing discounts to encourage dealers to use the loaner program.

Zangara moved three 2006 Dodge Ram pickups that had been sitting on his new car lot for about nine months into the loaner program. The pickups, each valued at about $33,000, were used as loaner trucks for one day last month before they were transferred to the retailer's used-car business and tacked with a $26,000 invoice.

"It was like a no-brainer," Zangara said.

Under the program, a 2006 model-year Dodge Durango SUV with a sticker price of $30,000 as a new vehicle could be discounted by as much as $11,500 on the used-car lot after being used as a demo for a day, according to dealers.

Chrysler's sales rose 4.3 percent in May, according to Autodata Corp., a New Jersey company that tracks auto sales.

Dealers asked for program

Steve Beahm, director of field operations at Chrysler, acknowledged the need to move 2006 models as a reason for relaxing the loaner rules, but said dealers asked for more generous terms. Chrysler's loaner program has some of the most stringent rules in the industry, he said.

"It's not as if we got this glut of '06s out in the dealerships," Beahm said, noting that older models account for 2 percent of Chrysler's inventory, or about 9,600 vehicles at the end of May.

Once the vehicles were transferred, along with titles and registration forms, to the used-car business, Chrysler counted them as sales, Beahm said.

Analysts say the arrangement may appear to unfairly inflate sales, but there is nothing unethical about it."It seems almost shady -- like move cars over here to sell -- but in reality, it's nothing more than rearrangement of your inventory," said Jesse Toprak, executive director of industry analysis for Edmunds.com, a research Web site for car buyers.

"The only thing one can argue is if it's fair or not for the automaker to count that move as an actual sale that month. That's probably the only thing I would say is a gray area. But there's nothing suspicious. It's just the way the business is done."

Cliff Banks, an editor at Ward's Dealer Business, said automakers offer dealers all kinds of incentives at any given time -- "things we never hear about" -- to help sell vehicles.

In 2005, Honda Motor Co. paid dealers extra incentives to sell additional vehicles when it looked like the Japanese automaker wasn't going to reach its sales target that year, he said.

As for Chrysler's effort, Banks said it shows Chrysler is trying to help its dealers and "create a more favorable environment in light of last year."

Inventory riled dealers

In 2006, Chrysler riled many of its dealers when it misjudged the U.S. marketplace and built too many big trucks and SUVs that consumers shunned because of high gas prices. As the excess inventory piled up, Chrysler pushed dealers to take more vehicles. Around this time last year, Chrysler's stockpile was at 592,486 units, compared to its May 2007 inventory of 479,501 cars and trucks.

Chrysler began offering steeper incentives on 2006 and 2007 model-year cars and trucks in January. When the program's May 31 deadline neared, the automaker decided to roll out the new loaner rules for 2006 models.

The arrangement gives dealers some financial wiggle room, allowing them to make some profit on cars and trucks that may be harder to sell as newer choices hit the market, Banks said. It also helps cut costs because the expense of keeping aging vehicles grows the longer they sit there.

"The dealerships have to pay the finance reserve on these cars and sometimes manufacturers have to subsidize some of that reserve," Toprak said. "It costs everyone money."

Having older vehicles around can also cost sales.

"Ideally, they do not want a 2006 new car next to a 2007 model-year new car," Toprak said.

Deep discounts on older models may sway a buyer to overlook newer cars and trucks particularly if the updated vehicle doesn't have any new features or a new design.

"That's going to potentially cannibalize your 2007 sales," Toprak said. "You don't really want that happening."

 

So the problem, of course, was always with Chrysler, not the Crossfire. The oversupply was across the model range. Too bad such an inept company made such a nice car.