Chrysler Adds Deep Discounts to Unload Autos

In an effort to unload 2006 vehicles, the Chrysler Group allowed its dealers to designate the new vehicles as "loaners" for as short as one day before selling them as used units for sharp discounts. The decision of the automaker came at the end of May as it envisions finishing the month on a competitive note.

Chrysler, Dodge and Jeep dealers can use new vehicles as loaners for test-drives. The vehicles could also be used by purchasers who need a car while theirs are in service. Before, dealers have had to use a vehicle as a loaner for three months before selling it as used. Now, the requirement was slashed to just a day to count the vehicles as retail sales. This is an effort of the automaker to push the outdated vehicles out of their new car lots, where they might diminish interest in newer product lines.

Last year, instead of cutting production, the Auburn Hills-based automaker overbuilt the 2006 model year vehicles. The excess vehicles are often parked in lots around metro Detroit. These vehicles produced scuffles between the automaker and its dealers. The latter 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 such is still continuing this year. The loaner program provided a way to eradicate some of the last models 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.

The automaker offered dealers $2,000 on top of offered discounts to persuade 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 in May before they were transferred to the retailer's used-car business and tacked with a $26,000 invoice.

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. Like the efficiency of the Jeep window motor, the automaker also expects accurate production and sales results.

Steve Beahm, the director of field operations at Chrysler, acknowledged the need to move 2006 models as a reason for relaxing the loaner rules, but the 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 two percent of Chrysler's inventory or about 9,600 vehicles at the end of May. He added, “Once the vehicles were transferred, along with titles and registration forms, to the used-car business, Chrysler counted them as sales.”

Analysts said that 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, the executive director of industry analysis for Edmunds.com, a research Web site for auto shoppers. "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."