GM returns to employee pricing to lift sales
Reuters
August 18, 2008
DETROIT (Reuters) - General Motors Corp (GM.N), aiming to boost sagging sales, rolled out a major promotion for U.S. dealers on Monday that includes employee-level discounts on almost all the Chevrolet cars and trucks in its showrooms.
The discount offer takes effect on Wednesday and marks GM's return to a strategy it had abandoned in the last two years in an effort to make its pricing more transparent and to wean American consumers from fire-sale blowout deals.
But the downturn in U.S. auto sales has hit GM hard. Sales through July were down almost 18 percent and the automaker has faced pressure to cut costs amid signs that industrywide sales would remain slack in August despite lower gasoline prices.
"Desperate times call for desperate measures, and that's what we're seeing from GM," said Jesse Toprak, an analyst who tracks incentives for automotive Web site Edmunds.
Earlier, people briefed on the promotion had told Reuters about the new incentive plan. GM spokesman John McDonald confirmed the automaker would offer the employee pricing and said more details will be announced on Tuesday.
GM will offer employee discounts on all 2008 model year Chevrolets in addition to cash-back offers on slower-selling models such as the Chevrolet Silverado pickup truck, according to a dealer briefed by GM on the plan.
The offer also will include employee pricing on some 2009 model-year vehicles, including the Cobalt sedan and HHR compact wagon, two of the more fuel-efficient Chevy models, according to the dealer, who was not authorized to discuss the plan.
GM shares closed down 7.3 percent on Monday, hitting their low for the day just after the incentive announcement.
GM briefed dealers representing all of its U.S. brands -- including Cadillac, Saab, Buick, GMC and Saturn -- on the new discount offer on Monday.
The top-selling U.S. automaker, which has faced pressure to cut costs and shore up its cash position in the face of the sharp U.S. sales downturn, has had some success with targeted incentive programs in recent months.
"It's not a new theme, but, on the other hand, the track record of GM's incentive programs has been very good," said the dealer briefed on the new discounts.
Buyers for the Chevy Silverado will get $5,000 back in addition to the $3,000 employee discount, while incentives total $10,000 for the Chevy Tahoe SUV, the dealer said.
GM surprised analysts in June, as a zero-percent financing offer for six years cushioned its results at a time when the market hit a 15-year low.
The boost from that incentive offer was enough to allow GM to keep its top spot in the U.S. market, heading off a threat from Toyota Motor Corp (7203.T).
SHIFT IN MARKETING
The latest incentive offer comes as GM shifts away from other high-profile marketing as part of an attempt to cut $10 billion in costs through 2009.
GM said last month it was cutting back on its spending on motor sports sponsorships. A spokeswoman said on Monday it also would stop buying commercial spots during the Emmy award broadcast and the Academy Awards -- two major television events of the year.
GM, like smaller rival Ford Motor Co (F.N), has also been throttling back on leasing offers in response to tighter credit and the plunging resale prices of larger vehicles.
In recent years, cheap lease offers subsidized by the automakers have allowed American consumers to afford larger and more expensive vehicles than they could have otherwise.
But the double-digit percentage decline in the resale value of big SUVs and pickup trucks in recent months drove GM and Ford to realize combined losses near $4 billion on vehicle leases in the second quarter.
GM has been offering rebates of up to $6,000 on big SUVs like the Tahoe, along with some zero-percent financing, as it works to clear out a 2008 model-year inventory overhang.
Such incentives and discounts are closely tracked by analysts and investors as an indication of profitability and the pressure major automakers face to move unsold inventory.
GM incentives for July averaged $4,214 per vehicle, above those of Ford and Chrysler LLC and more than 3-1/2 times the spending by Toyota, according to Edmunds.
Toprak said GM's last round of employee pricing offers in 2005 worked because they eliminated customer uncertainty about negotiating a good price. Employee discounts are below the invoice amount dealers would normally pay.
"It's a good deal for customers," Toprak said. "From GM's perspective, it's key to clear out the (2008) models before the '09's start to roll out."
(Reporting by Soyoung Kim and Kevin Krolicki; Editing by Brian Moss, Gerald E. McCormick and Carol Bishopric)
(c) Reuters 2008
