Incentives Cited as Chrysler Profit Dives 24.4%

Expensive sales incentives and plant shutdowns led to a 24.4% drop in first-quarter profit for Chrysler, the auto maker said Monday. In addition, the company announced a cutback in merit raises for top employees.

Chrysler Chairman Lee A. Iacocca blamed the sharp decline in part on the high costs Chrysler incurred while offering discount financing and other sales incentives to lure buyers into dealer showrooms.

Chrysler was forced to reintroduce sales incentives when domestic car sales plunged earlier this year, following a big sales boom in December.

Many consumers, seeking to take advantage of the deductibility of the sales tax on their purchases before the new federal tax law eliminated that provision Jan. 1, bought cars in late 1986, ahead of schedule. Detroit’s auto makers brought incentives back to slow the slide in car sales that began in January.

Chrysler’s earnings fell to $269.7 million during the first three months of 1987 from $356.9 million during the same period last year.

Iacocca said Chrysler had to “match our competition, or go them one better, in the incentive wars” during the first quarter. But, he added, Chrysler is in a much better position to pay for such promotional activities than it was during its financial crisis in the early 1980s. “A few years ago, those incentive wars would have blown us out of the water,” Iacocca said. “Now, we can go toe to toe with anybody and still make a solid profit.”

Iacocca also noted that Chrysler’s earnings were depressed because two of Chrysler’s assembly plants were shut during the quarter so they could be retooled for model changeover. At the same time, American Motors’ Kenosha, Wis., assembly plant, where AMC builds Chrysler’s big, rear-wheel-drive cars under contract, was also being retooled during the period. Iacocca said the company spent nearly $600 million on plant modernization and new product development during the quarter.

Chrysler is also starting to worry about curbing costs. The company said it is reducing merit raises by 50% for the remainder of 1987 for its 1,900 top executives and also is eliminating a new savings plan for the same executive group.

Iacocca, who made $20.6 million from his salary, bonuses, stock and stock options in 1986, will be included among those who receive smaller merit pay hikes in 1987, a Chrysler spokeswoman said.

Meanwhile, the auto maker will also pay its salaried personnel straight-time pay for overtime work.

Also on Monday, Automotive News, a trade journal, reported that Chrysler plans to have Lamborghini, the Italian auto maker, produce a $70,000, high-performance two-seat sports car that would be sold by Chrysler. However, Chrysler, which acquired Lamborghini last week, has denied that it plans to distribute Lamborghini products through Chrysler’s dealer network.