VW, Ford discount threatens German auto dealers

Volkswagen AG and Ford Motor Co., preparing for a market decline in Germany after the end of the country's "cash for clunkers" program, are cutting prices at a near-record pace that dealers say may put them out of business.

Ford is offering zero-percent financing and a 2,000-euro ($3,000) rebate for the Focus, Fiesta and Ka compacts. A package of cheap loans, insurance and servicing provides savings of as much as 1,330 euros on most of VW's models. The discounting isn't luring enough consumers back to showrooms and many sales are unprofitable, said Juergen Karpinski, the owner of Auto- Schmitt in Frankfurt.

"Dealers are being bled dry and many will fall by the wayside," said Karpinski, who sells models made by VW and its Audi and Skoda units, calling the crisis "the worst" in his 43 years in the industry. "The discount mania helps no one."

Europe's largest car market is also its most expensive, with prices about 5.5 percent more than the average for the 16 countries that use the euro, leaving greater room for manufacturers and distributors to slash prices. The German government's 5 billion-euro incentive to encourage consumers to trade in older models ran out of money in September, prompting carmakers to step up discounts to levels during the height of the financial crisis.

Automakers' discounts jumped to an average of 2,485 euros, or 11.6 percent, off the sticker price in October, almost a percentage point higher than in September and approached the peak of 11.8 percent in December 2008, when manufacturers sought to trim inventories, according to Autohaus PulsSchlag trade publication. Before the recession, discounts averaged about 10 percent.