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Thursday, August 31, 2006

Chrysler: Zero Percent Financing Forever

Stocks: (GM)(F)(DCX)(TM)

According to the Wall Street Journal, Chysler will begin offering zero percent financing for 72 months. That's a very long time. It is also probably an indication that the car sales figures for August that will come out next week will be poor for yet another month. Toyota is also offering incentive. Odd, given that their North American sales have been strong this year, but the company's models have had more than their share of defects and recalls.

GM is beginning to offer cash-back incentives probably sensing a new round of marketing techniques to get buyers into dealerships. Almost all involve some form of discount. Ford is offering incentives on 2006 models.

The incentives are an indication that Detroit still has not been able to arrest its drop in unit sales and loss of market share, especially to Toyota. Sales of large SUVs and pick-ups have been badly hurt by high gas prices, and these models are usually the most profitable that the car companies sell.

If August unit sales are poor for Ford, Chrysler, and GM, and they have to continue incentives to clear out 2006 model inventories or jump start 2007 model sales, look for poor earnings numbers in the third and fourth quarters of 2006.

That is not what Detroit needs.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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