More incentives on new car purchases: Consumers win, car companies don't

A new 2010 Chrysler with $4,000 cash back? Large incentive programs for new cars are usually set up to help dealers dump inventory they cannot sell or clear lots of last year's models as current model year cars and light truck come in.

Incentives like this have been one of the primary reasons that Detroit has had trouble making money. Overseas manufacturers like Honda (HMC) and Toyota (TM) are already seeing their profits hurt by a weak dollar, and if they have to match incentives from the U.S. car companies, they could lose even more money on many of their models.

The Wall Street Journal reports that Chrysler will offer deals where buyers can choose between 0% financing for 60 months or a cash rebate on all of the automaker's vehicles through Jan. 4th." GM is still offering its "60-Day Test Drive," where cars can be returned, no questions asked, within 60 days of purchase. Chevy's website shows that the GM division is already offering $1,500 in incentives on some 2010 models, while GMAC is offering $2,500 back on many 2009 models.

The new Chrysler "cash back" and low interest loan programs are likely to start price wars for makes and models from other manufacturers that compete directly with cars in the Chrysler lineup.

The incentive programs show one of the reasons that the auto industry, particularly GM and Chrysler, which have posted sharp drops in sales most months this year, are not even close to getting out of the woods. Unit sales may improve next year, but the battle for market share is likely to heat up. All of the major car companies want to be well-positioned with customers if the auto industry has a sharp rebound in 2011 or 2012 as the employment picture and economy improve. But in the meantime, incentives are going to lose the car companies a lot more money.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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