GM shopping gains 30% in first weeks of discounts

[Reatta Man]

From the Detroit Free Press:

QUOTE

GM shopping gains 30% in first weeks of discounts

Sales nationwide increase 22% over May

June 16, 2005

BY SARAH A. WEBSTER

FREE PRESS BUSINESS WRITER

The General Motors Corp. promotion offering employee discounts to everyone has boosted the number of shoppers in showrooms across the country by nearly 30% over May, and increased sales, too, an automotive research firm on Wednesday reported.

Art Spinella, president of CNW Marketing Research in Bandon, Ore., said closing ratios for the first half of June, when the program started, are up about 22% compared to May for the struggling Detroit-based GM. A closing ratio is the number of sales that are finalized as a percentage of showroom floor traffic.

The mid-month findings suggest GM could post higher sales in June, Spinella said, noting that sales could taper off or even pick up by the end of the month. The amount buyers save varies from model to model; in some cases they can save several thousand dollars.

Floor traffic was especially strong in some critical markets where GM needs to boost its sales, such as Los Angeles and Miami, said Spinella, whose company gathers data at 450 dealerships in 27 markets.

If the employee program turns out to be a blowout, it raises the natural question of what GM will have to do in July to generate strong sales.

"There's some concern about what they do next month," said Mark McCready, director of pricing strategy and market analysis for Carsdirect.com. "Everyone wants to have a great summer. They don't want it to stop. When you have a big sale, there usually is a little bit of a pull-ahead effect."

That means people who intend to buy their vehicle decide to do so sooner than planned, usually to take advantage of an incentive program, resulting in a drop in the following month's sales.

Spinella says GM should continue the program for another month.

GM, meanwhile, has said it intends to lower prices on upcoming 2006 models.

But Spinella says they will have to drop prices about $4,000 on average to make a difference.

"It has to be substantial," he said.

END QUOTE

[Guest greg72monte]

I said I wouldn't buy a LeSabre, after having two Park Avenues, but the GM incentives just looked too good. Tonight I just bought a LeSabre Limited "Celebration Edition" in crimson pearl, a beautiful red. It is actually better equipped than my 95 Park Avenue. Now here is the clincher, "$7000.00 off list price".

This was the only one in red in my area. I am tired of blah looking silvers and variations thereof, and decided that I would only buy one if I could find a RED one.

I know that I do not fit the profile of the average Buick buyer at 48. My first Buick Park Avenue purchase was at age 28. My older daughter will be driving in a few months. She can learn on my 95 PA, which already has a few battle scars. It seems that GM CAN SELL CARS if they are priced right. I wonder how they can maintain this momentum.

[Barney Eaton]

I don't pretend to know anything about marketing, but think I know a little about cars and what people will buy.

Someone ask "does it cost more to make an attractive car, than an ugly one?"

I think the answer is NO, but too may cars are designed by committe.

If you have a hit in the show room, meaning people think it is cute, attractive, a real beauty, people will buy it at almost any price. Take the PT Cruiser as an example...at the beginning they could not build enough of them and the price was sticker or more. The same thing seems to be happening with the new Mustang. The other end of the spectrum is the Pontiac Aztec, that vehicle just faded away..... would it have sold at $3,000-4,000 less? Priced right, almost anything will sell.

I was dissappointed with the Buick LaCrosse when it was released, to get the same equipment as the Regal it replaced, it cost more and was a ho-hum look.

However, a golfing buddy just purchased one and the only thing that got him in the door was the Employee price. He has not owned a GM car in 15 years.

He is quite please with the overall car....at the price he payed. If he was faced with sticker price or even a $1,000 incentive, he would have been in a Toyota or Nissen.

I think all the US auto manufacturers are afraid to lower the MSRP because it could start a price war and the foreign manufacturers would probably win.

I could go on about what I think but the buying public will write the final chapter.

[Centurion]

Greg, congratulations on the new LeSabre Celebration Edition! Will be eager to learn what you think of the car. I've seen one of these in red and it is indeed a very striking car.

[Matt Harwood]

Excellent points, <span style="font-weight: bold">Barney</span>. An old marketing adage is "you can sell anything if you price it cheap enough." GM is certainly taking advantage of this. But, as you say, can they sustain it? There are a lot of concerns about what July will hold for GM--they can't keep this up forever.

Right after 9/11, GM did a great thing by offering discounts and 0% financing and helped get the economy moving again. The problem was that they became addicted to the sales momentum and started overlooking profitability and focusing on market share (which still declined steadily). Three and a half years later, they're still limping along with cheap financing and now, massive discounts. Market share is up for the moment, but it doesn't take an economist to realize that it is both hugely expensive and completely temporary. Right now, anyone who was even <span style="font-style: italic">thinking</span> about buying a new car is buying one. Where will next month's customers come from? What about the customers in October, when there are hundreds of 2005 cars stacked up on dealer lots and new 2006 cars arriving every day? It looks to me like cannibalizing your own future for immediate results today (hmmmm, I guess if it's good enough for the government, it's good enough for GM...)

The bigger problems GM faces are (1) how will they make money selling cars at or below cost and with 0% financing and (2) when they finally do wean themselves off of "the deal" will anyone ever buy a GM car for sticker price? Of the two, I think the second problem is the most serious--your friend only bought a Buick because of "the deal" he got, not because he wanted the car. I wonder how long it will be before anyone goes into a GM showroom without automatically whacking $2000-4000 off the sticker price before they even start negotiating.

In one fell swoop, GM has relegated itself to the completely unattractive position of <span style="font-style: italic"><span style="font-weight: bold">"Crazy Eddie's Discount Car Emporium!"</span></span> That isn't how you create value, and creating value is what GM desperately needs to do. If they ever want to return to profitability and strength, they have to sell products that people want to buy because of their value, not because of "the deal." Not only must the products be attractive and competitively-designed as you rightly assert, they must represent good value for the dollar. Right now, it's obvious that the LaCrosse is one heck of a $22,000 car. It's also painfully obvious that it is not a very good $34,000 car. That's <span style="font-style: italic">value</span> in action.

Until GM can get off this fire-sale mentality and sacrificing everything in the name of gaining market share, all it will do is dig a deeper hole. As I said in an earlier post, if you lose money on every car you sell, gaining market share only makes the boat sink faster! You can't discount your way to profitability.

[Reatta Man]

Matt,

Excellent points, except there is one thing to consider: GM has been doing the employee discount program for YEARS and not loosing money. In fact, a little secret that no one is telling the public is that GM has actually REDUCED their rebates since the Employee Pricing for Everyone promotion started!

Are they making less on each car? You bet. But they have been selling cars with huge discounts to certain groups for years. Military and stationed overseas? Go through the AAFES new car purchase program and get a GM car in Europe for less than your brother can pay for the same car in Florida! Employee? Fine; buy a PEP (Product Evaluation Program) car with a few miles on it for WAY less than the current promotion. Buy a car with Smart Buy with a purchase price in 36 months of $16,000, but decide to not buy the car? Fine; GMAC runs it through the dealers-only wholesale auction for $11,500. Did they loose $4,500 on the car? Looks like it to me, but they will NEVER sell the car to the customer for $11,500 if the end-of-contract price says $16,000. Apparently a lot of things that look as if they are loosing money to you or me seems to make business sense to them.

AND, keep in mind that when everyone was claiming GM couldn't make money with the crazy incentives they were offering a year or two ago, they made a profit and paid a dividend to stock holders in every quarter until the last one. What changed in the first quarter of 2005? They stopped (or tried to slow down) the incentives and got their butts handed to them due to lost sales!

They may not be making gobs and gobs of money on each car, but I can almost 100% guarantee you that with these incentives, and getting their market share up over 30%, they WILL make a profit this quarter!

One more thing to consider: GM, for years, has been making more money on FINANCING cars (GMAC) than they have on the cars themselves! So, even if they only make $1,000 per car, they have to sell the car in order to finance 80-85% of them. And yes, leasing IS financing. In fact, it is so profitable for GM and its dealers, some money experts refer to leasing as fleecing.

I'm not criticizing GM; in fact, they are doing some things that secretly Ford and Chrysler will tell you are brilliant. Are they cannibalizing sales from future months? Probably; but keep in mind that nearly all car purchases are emotional. So, they may actually be BRINGING IN customers that otherwise would have kept their car for another 2, 3 or 4 years and never even considered trading. Otherwise we wouldn't trade in a perfectly good two-year-old car for $15,000 less than we paid for it only to go further in debt for new shiny one. "Gotta have that new car smell and new car warranty, right?" Totally illogical, but that's what keeps the car biz going.

Joe

[Matt Harwood]

You're right, <span style="font-weight: bold">Joe</span>--they've been doing it this way for years and it hasn't really hurt them (well, it hasn't hurt them as badly as it may appear on the surface, anyway). But the employee pricing typically applied to less than 10% of the cars they produced each year. Now it's 100% (except for the high-end stuff like Corvettes and Hummers). Can a big company afford to take a hit and/or sell at cost to its employees if those employees were less than 10% of their total? Of course. But at 100%, I bet it's a lot harder to make a buck. They can't run that way for long, and after this program is over, I guarantee you that their market share will drop back down to its pre-sale numbers of 22-23%

Alternatively (and this is just the marketing guy in me talking), it may also make potential customers in the near future wonder how badly they are getting ripped off. If GM can, indeed, afford to sell cars at employee pricing, how am I going to feel paying $8000 more for the same car two months from now? Isn't that $8000 money that GM could eat on my behalf? Might I feel a little bitter about being "gouged" like that if they've demonstrated that they can sell for substantially less? From a purely marketing perspective, this is going to hurt GM's perceived value <span style="font-style: italic">even more!</span> Again, mortgaging the future for short-term Band-Aids.

This "perception" problem GM has with the public won't be healed by cutting prices. That was really the point I was trying to make. All the financial tricks and creative bookkeeping in the world can't do what great product can. I'd stake my house on the belief that if GM would build great cars, they'd sell every one of them and make more money than they have since 1971. Product is king, end of discussion. Everything else (incentives, discounts, 0% financing) is just a Band-Aid to compensate for inferior product. Great product sells itself at market value. I'm sure we can all agree on that.

I guess my question to GM management is this: if GM blames all their woes on the $1500/car disadvantage compared to the competition because of legacy healthcare costs, how can they afford to knock 30-40% off the price and still be profitable? Wouldn't it make more sense to knock $1500 off <span style="font-style: italic">every</span> car every day (which they'll probably do in 2006), level the playing field, and start building cars that people <span style="font-style: italic">want</span> to buy instead of giving them away in some attempt to regain market share?

GM won't ever control 50% of the market again, but they seem to think that achieving that goal is "just around the corner." A GM that controls 18-20% of the market and sells all the cars it can build at sticker price (like Toyota, for example) is much healthier than one that controls 30% and sells them for pennies over cost and has to sell the leftovers to itself as rental fleets.

You're dead-on about GMAC and how much money it makes, especially through leasing. Selling the same car twice makes great sense for a car dealer and his bank (usually GMAC). But now that GMAC is separate from the rest of General Motors, I bet shareholders will be more than a little disappointed in their dividends next quarter. The money that "division" brings in is no longer available to them.

[Guest greg72monte]

Centurion,

I am picking up the 2005 LeSabre Limited on July 2. I am sure I will be as pleased with this one as I was with my 85 Park Avenue and my 95 Park Avenue. I am by nature a very conservative person, and have been impressed with Buick's reliability and quality ratings. While my peers are driving Lexus', I prefer my Buicks. I am also buying the reputation of Lindeman Buick, where I have been a customer for many years. They are a family, downtown (non-highway) dealer that sells ONLY Buicks.

[Reatta Man]

Matt,

I didn't know you have a marketing background. That makes it much easier for you to see things others can't see or understand. Been there, done that, have the sucesses and failures that go with the job.

As for the $8,000 difference, how would you like to be the guy who paid $8,000 more THE DAY BEFORE THE PROGRAM STARTED!?!

Ouch!

As for the incentives, I think GM's plan is to discount the daylights out of their current lines until much better looking products arrive in '06-'08. I hope it works.

As for the profitability factor of current pricing, if they can make money at current pricing, I wish they would make their GM Employee price the regular MSRP. People have been complaining about high car prices for year, and manufacturers have been coming up with endless "funny money" games to try to keep payments in an affordable range.

The economists can make all of the "price adjusted for inflation" and "what would it cost in 1970 dollars" studies they want to; the fact that Hyundai and Kia are doing so well is testimony that many people think $20K to $30K is too much to pay for a typical sedan or van.

Joe

[Guest imported_Thriller]

I think one of the key questions is whether or not they are making money on each vehicle at employee pricing. If yes, then the public will feel ripped off (especially some of us in Canada who just bought new trucks and don't get that pricing ). I saw at one point a $33k Monte Carlo down to $26k...better than a 20% discount. If they aren't making money on this promotion, well, they are screwed...if someone thinks selling more of something at a loss is a good thing, I don't think they understand basic math.

I don't think I'm being very cohesive...as John Q. Public, I'm wondering either about gouging or else how they think fire sale prices can make them more money.

I agree that building better product is key. In a year, we'll be looking for a replacement for the Montana and it won't be another minivan...I don't know if GM has any product that will appeal to us...although my sales guy did mention he saw promotional material on a new Buick that looks pretty nice...I forget the name of it...all I want is something I can fit a growing family in, has some height for better visibility, gets decent fuel economy, and can pull 1500 lbs without hurting itself. I guess we'll see who can deliver that.

[Guest greg72monte]

Now that Chrysler and Ford say "ME TOO" for employee pricing, the bloom may be off the rose for record sales, who knows???

All I can say is that I love my new LeSabre, and I have had many favorable comments about the color(Crimson Pearl, a Celebration Edition only color,and also a Cadillac color)

[Reatta Man]

Greg,

Good question. It is also interesting to note that several Ford and Chrysler dealers here in South Texas were advertising "employee discounts" LONG BEFORE their respective manufacturers announced the official policy. Sounds like GM's message really was getting through to buyers.

With Chrysler and Ford being so late, they may sound like Al Gore in the debates; every time Bush mentioned something he did, Gore would basically say "Me, TOO!" and he diluted his message and looked more like only a copy cat.

Another point to note is that the fine print from all of the big three reads "at participating dealers." Some of the GM dealers around here were actually advertising "BETTER than GM employee discounts" to try to make it seem as if there is "their employee price" and "OUR employee price, which is better than theirs." If dealers are playing shell games with these discounts, they can alienate the buying public and dilute the power of the message.

Hey, at least people are looking at American brands. Maybe this will offset enough of the subsidies and price supports provided by the Japanese government to truly make American brands competitive.

On another note, GM will soon announce something called "Value Pricing" for 2006 models, suggesting these price cuts may very well be permanent, and maybe move all GM brands closer to the Saturn strategy of one price for everyone. Between that policy, and the new Buick warranty for 4 years or 50,000 miles, they think they can have Buick back up to 500,000 sales per year.

Joe

[Guest Skyking]

<div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body">

Hey, at least people are looking at American brands. Maybe this will offset enough of the subsidies and price supports provided by the Japanese government to truly make American brands competitive.

Joe </div></div>

Joe, with the way new American cars are selling, I guess our quality wasn't really an issue.....Maybe this is what this country needed! If I wasn't looking for property in Florida, I think I'd look to buy a new Buick too......

[Dave@Moon]

It's 1953 all over again. I wouldn't want to open a Mitsubishi, Audi or Land Rover dealership any time soon.

Some will say good riddance, but the resultant reduced choice in the late 1950's created complacency that created the need for these price wars (and several others since the 1970s). It will repeat, it always does.

[Reatta Man]

Actually, I don't think anyone would argue the point that ALL domestic makes had to get better due to the competition of foreign brands.

I don't want them to go away, but it would be great if everyone has as close as possible to a level playing field.

[Guest greg72monte]

Forbes.com list of 14 most unreliable luxury cars

Mercedes Benz 4 models listed

BMW 2 models listed

Jaguar 2 models listed

Land Rover, Lincoln, Porsche, Saab, VW and Volvo all 1 entry each.

The closest thing GM had on the list was one Saab model.

The perception is that foreign luxury is better.

I don't think so!!

[Dave@Moon]

<div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body"> The perception is that foreign luxury is better.

I don't think so!! </div></div>

Like the major improvement in GM reliability, the decline of high end European cars is a recent phenomenon largely occurring within the last 10 years. Most analyses I've read believe that it is the result of a recent European fetish for gadgetry (i.e. <span style="font-style: italic">I-Drive</span> and the like).

It's a real shame to have lost the kinds of cars that Mercedes, Volvo and BMW used to supply our market. I think they spurred the GM resurgence (through Cadillac) as much or more than Toyota and Honda did. (When GM started to lose the upper end of the market with Cadillac in 6th place, <span style="font-style: italic">then</span> it began to respond!)

1953 ultimately did bad things to the car industry. Let's hope 2005 doesn't begin it again.

[Guest elk93001]

I think the perception that the European luxury is better stems from the fact that when the US car makers put such gadgetry in their cars, they still didn't improve the handling characteristics of the car. The most recent example that I can think of is the 1986 Riviera...they downsized it, but put in the GCC (tv tube) to control AC, Radio etc. which took your eyes off the road. I recall reading that they (the press) still had issues with the handling despite shedding many pounds from the previous year's model. Despite the gadgetry, the Euro makes still manufacture some of the best handling cars. GM and others are catching up if they haven't already. Remember digital dashes (bad memory)? I remember alot of Euro makes still using analog gauges that were easy to read, especially compared to the digital gauges that US makers were putting in alot of cars in the 80's.

I hope that the "light at the end of the tunnel" for GM (particularly Buick) is that the reliability reports, the new longer warranty for the Buick and maybe some new, exciting products will make it the Buick that people will respect. GM has everyone's attention, now they just need to keep the ball rolling in the right direction. There has been so much written about the downside of the employee discounts on GM cars, but what if GM does have some decent (read: desirable, exciting)products with good reliability in the pipeline, then this discounting merely helped clear inventory to make room for these products. The other positive "side effect" is that if GM's quality is up to snuff on all the products they sell during this promotion, they may actually benefit (nobody has really talked about that in the press). If you root for the underdog, one can only hope that this is the case.

For those in Batavia...hope you all have a good time and a safe trip home.

[Guest imported_PackardV8]

Luxury??? Handling???? I don't know about europe, but in America those "qualities" wheather real or imagined are primarily dictated to the buying public thru media and advertising. I am convinced that the average American has absolutley no concept of what a good or bad handling car really is let alone its luxury level or quality of engineering.

However, the average American DOES know the cost factor associated with maintenance of a car.

How many first time new MB or BMW owners has anyone ever known to actualy buy a SECOND such car????? Do i need to go off on Audi(EU version of Yugo)??? One local multi-millionaire that i know decided to buy a new 87 MB after owning 12 concecutive Cadillacs. In 88 he went back to Cadillac and only recently tried a Jag. He was NOT impressed with MB's quality,luxury, service oranything else and he was a man that liked to travel by car and does alot of driving. I know of 2 other similar people.

It is very true that American quality had slipped excessively during the 1965-1985 production time frame. But i'm not sure the EU cars were much better RELATIVE to cost difference. The MB and BMw craze over the last 25-30 years has been strictly a People Magazine type promotion instilled in the American mind. Similar to that of the Audi craze during the late 70's, digital gauges, Front wheel drive, Mcpherson strut, Rack & pinion, uni-body .... ALL of which are less than desireable by any traditional American standard WHICH IS about as high as it gets..

[Guest elk93001]

Packard V8 I don't disagree with you regarding the perception but,I'm not sure if the "handling" of a European car is totally (100%) dictated by the media. If someone was in the market for a $25,000-$30,000 car in the mid 80's, they were probably looking at Cadillacs, BMWs, Jags and Benzes (that was the price range for these cars.) All one had to do is take one for a test drive (especially if they were going to spend that kind of money in the 1980s). The RWD Bimmers, Benzes and Jags didn't have torque steer from front wheel drive. In order to get tighter handling, you had to opt for some kind of suspension upgrade on the domestic cars. Alot NVH and traction control improvements we see now for unibody FWD did not exist. With RWD of the Euro cars, some of the NVH can be dampened (no NVH from the drive wheels transmitted up through the steering wheel).

Unfortunately for GM, there were reliability issues early in the 80's that soured alot of buyers from the newer Cadillacs and Buicks, which added to this bias.

The point of my previous post is really more of a comment or hope that Buick through GM's recent promotion can overcome the stigma that has been attached to its cars for the last 25-30 years. They (Buicks and Cadillac) are among the most reliable cars today. If more people are buying them through incentive programs, maybe the reliability will help on two fronts: perception of the cars will change to be more positive AND lower warranty costs may actually help GM in the long run. If GM can be seen as a maker of reliable cars and not come up with half-baked cars (ala Fiero, where they finally got the car right when they pulled the plug) then most of GMs woes as of late may actually go away.

[Reatta Man]

Packard,

To add to your points about many drivers being ignorant about good vs. bad handling, consider the following:

1. We train 95% of our new drivers with gymn teachers or some other teacher doing this as a secondary job. The school district buys or fleases (leases) the cheapest big 4-door they can get (Ford Taurus) and teach kids how to stop at a stop sign Whoopee. No wonder people can't drive after it has been raining for more than 30 minutes. No emphasis on emergency handling, how to control a steer using the car's engine vs. brakes, how to drive in the rain, etc.

2. Most people look more at price vs. quality. For example, Chevrolet made the best bargain in the automotive universe available in nearly every car line--the F41 upgraded suspension option for about $15-35. It gave you better shocks and springs, and in some cases, a bigger or additiona anti-sway bar. So why wasn't it on 95% of all Chevies? Because a buyer would go to Dealer B if Dealer A's car had the F41 package and cost $15-35 more than Dealer B's car! Dealers soon learned to order their sales lot cars as cheaply as they could for those price shoppers.

3. To build on the price vs. value/quality concern, one Buick dealer told me most of his customers don't care about anything other than cost. He even said most of them would buy a car without headlights because they never drive at night (due to Buick's median buyer age being about 68 years old).

Another local dealer found out he could sell cars damaged in a heavy hail storm if he just discounted the cars equal to his insurance company's payment for the hail damage. So, people were coming in buying new but heavily damaged cars with multiple hail dents just because they were cheap. He even had dentless paint repair people on site to fix the cars at a discount, but most buyers were NOT getting the cars fixed! Personally, I could NEVER live with a car with hail damage, but car nuts like us are a different breed from the typical car owner.

All of these things may help explain why the Employee Price for Everyone promotion is so sucessful. They will buy nearly any car they think is a bargain. If the quality is there, maybe next time they will be loyal to that brand.

Joe

[Dave@Moon]

<div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body"> In one fell swoop, GM has relegated itself to the completely unattractive position of "Crazy Eddie's Discount Car Emporium!" That isn't how you create value, and creating value is what GM desperately needs to do. </div></div>

It's getting scary, folks.

===============

from thecarconnection.com

<span style="font-weight: bold">GM Gets New Credit Rating Warning

Even in a strong year, GM and Ford still are hurting.</span>

<span style="font-style: italic">by Joseph Szczesny (2005-07-11)</span>

It was a great party General Motors threw during June when sales soared 47 percent. But the big jump in sales last month apparently hasn't impressed the people who evaluate GM's credit.

The company's marketing team was still doing curtain calls when Moody's Investors Services swooped in to cut the celebration short by warning that it was likely to cut GM's credit rating to below investment grade sooner than later.

Wall Street's other two credit rating services, Standard & Poor's and Fitch, had trimmed the credit ratings on debt issued by GM and General Motors Acceptance Corp., GM's captive finance arm, back in May. A downgrade by Moody's would make it a clean sweep. Moody's currently rates GM at Baa3, its lowest investment grade rating. GMAC is rated at Baa2. The warning will have an impact on GM's $175 billion of outstanding debt, Moody's said.

Moody's even warned it may cut the ratings of Residential Capital Corp., a GMAC subsidiary that is not connected to GM's automotive business but is in the booming mortgage business.

Behind the curtain

Moody's looked behind the big June sales numbers and indicated it didn't particularly like what it saw at GM, noting the big "employee discounts for everyone" promotion is going to be hard on GM's slender profit margins. GM has already extended the program for another month and both Chrysler, with help from a flashy ad buy featuring former Chairman Lee Iacocca, and Ford Motor Co. have matched it.

In addition, GM is already contemplating offering incentives on some 2006 models even though it won't start building 2006 models in most of its plants until after the end of a two-week summer shutdown.

With the incentives wars escalating GM, which is already said it expects negative cash flow this year, also said the campaign may cause the automaker to use up more of its cash reserves this year than previously anticipated, Moody's said.

Moody's also noted that GM's market share remains under pressure and that the company could face significant restructuring charges to reduce capacity in GM's North American operations in the future.

Weak players, strong industry

Meanwhile, the economic forecasting unit at Standard & Poor's, which is separate from the credit rating service, said that while sales of new vehicles remain strong, not everyone in the car business is prospering.

S&P predicted more market-share losses for GM and Ford in its semi-annual review of the industry. The Big Three automakers will continue to lose market share to foreign carmakers, principally the Asian brands, the study also noted. It also reports that the highly profitable light truck, minivan, and sport-utility vehicle segments are of particular concern right now.

Once dominated by the Big Three, the truck segments are under increasing pricing pressure from foreign manufacturers. In addition, a shift to smaller, newer, and more fuel-efficient vehicles in the SUV segment is making life difficult for the domestic manufacturers. Thus, the Big Three's market share and profit margins in this sector will decline in coming periods.

"The light vehicle segment has up until now been a bastion of profitability for American manufacturers," said Efraim Levy, autos and auto parts analyst with Standard & Poor's Equity Research Services. "We anticipate that the category will continue to see the effects of heightened competition, with increased pricing pressure and discounting."

The lower credit ratings for both General Motors Corp. and Ford Motor Co. comes largely from bulging domestic inventories, which have led to cuts in North American production. Rising steel and oil prices, which have raised the price of producing and owning a vehicle, and weakness among parts makers, also have made life more difficult for carmakers, S&P said.

Standard & Poor's also predicts that U.S. light vehicle sales volume will rise 0.2 percent to 16.9 million units in 2005, from 16.87 million in 2004. The forecast reflects the firm's projections for stronger growth in the U.S. economy, an improved stock market, and a lower unemployment rate, as well as improvements in consumer confidence.

CSM Worldwide of Farmington Hills, Mich., also has issued a new forecast, predicting that light-duty vehicle sales will reach 16.95 million units this year - a level once considered a guarantee of profitability for both GM and other domestic manufacturers.

[Guest Skyking]

This will probably pi$$ some people off on this forum, but I think it's high time this government does something about the foreign auto makers party-ing in this country.......! It's going to become survival........

[Matt Harwood]

Quality op-ed from yesterday's www.AutoExtremist.com (I've highlighted one especially relevant paragraph in <span style="font-weight: bold">bold</span> that speaks directly to the quality products but poor marketing and image that hobbles them):

<span style="font-style: italic">Turn out the lights, the party's over - Detroit is officially out of ideas.

Detroit. The tinge of desperation hanging in the air over Detroit over the past few months has now given way to a dark sky teeming with thunder, lightning and swirling black clouds of doom. Enviously eyeing GM's wildly successful (at least for the short term) "Employee Pricing for Everyone" sales promotion program, Chrysler and Ford felt they had no other choice but to follow the world's biggest automaker - right off the cliff into Price War Hell. As if skeptical American car- and truck-buying consumers needed any more evidence that considering anything "American" (other than a few laudable exceptions) was useful only if you were in search of "the deal" - this latest lemming-like embarrassment from Detroit has solidified consumer mindsets for good.

The most compelling evidence that Detroit has gone absolutely stark-raving mad? The Chrysler Group's pathetic nostalgia trip in bringing back Lee Iacocca to push their "employee pricing" discount program. In a market that couldn't care less about anything having to do with "Detroit" - how could anyone possibly rationalize that dredging up a guy whose time had officially passed easily ten years ago would have consumers waxing nostalgic about Detroit's "good old days?" This from the Chrysler Group, a car company that had at least a modicum of momentum going with their 300/300C and whose executives love reminding the media every chance they get that they're smarter than the folks down at "the Tubes" and in Dearborn - and that only they are the ones who well and truly have their [@!#!$] together in this town.

Well, apparently, they've run out of talent in Auburn Hills, because this newest venture into Geezer Marketing with a dollop of washed-up Seinfeld refugee thrown in for good measure (Jason Alexander utters the hackneyed phrase, "If you can find a better car, buy it") is proof positive that the Chrysler Group is no better than the rest of 'em and that left to their own devices, they won't hesitate to take the whole sordid business of commodity automotive marketing down a few more notches if it will "break through the clutter."

There's that magic marketing/advertising catchall phrase again. Chrysler executives felt that they had to "break through the clutter" in order to bring attention to their "employee discount" program. My question to them is: When the clutter you're attempting to break through is bullshit to begin with, how do you expect to make shine-ola out of it? Or, in other words, multiple negatives will never equal a positive, no matter how you formulate it.

Enough about Chrysler - they will tell everybody who will listen that their program is smarter and wildly successful, but for my money, it's just one more reason for the consumers "out there" in the real world to dismiss Detroit as shameless hucksters who push hype and marketing sizzle instead of products that people actually want.

<span style="font-weight: bold">"If you can find a better car, buy it" happens to encapsulate everything wrong with Detroit in its current guise. American consumers have been finding better cars from non-Detroit car companies for the last two decades and buying them in droves. And now that Detroit is actually building some pretty damn good products, they can't for the life of them figure out why consumers don't believe them. And why should they? They're now conditioned to wait a little longer for the best possible deal, instead of taking note of the improved quality ratings and positive reviews of the new products coming from Detroit. In other words, consumers are looking at Detroit products for all of the wrong reasons - while the "new and improved" message is getting lost in the shuffle.</span>

In a business that revolves around the integrity of the product, Detroit automakers have successfully squandered what little shred of credibility they had left and their last real opportunity to convince consumers that they finally have the products worthy of serious consideration - because they just couldn't contain themselves and take the long-term view. Instead, they strapped their 30-day sales goggles on, disengaged their brains and in the process rendered anything from a Detroit car company as a commodity once and for all - one only to be considered if it's cheap enough.

So, here we are - when you give employee pricing to everyone, what's next? GM insists that after this big, final blowout sales push they can calmly "flip a switch" and show up in the fall with "value pricing" on their hot, new 2006 models and they will be back on the road to momentum and profitability. As Coach Lee Corso says, "Not so fast, my friend." The bottom line for GM is that they're fighting their own recent history as "America's Discount Auto Company." (And by the way, to those certain Wall Street analysts using variations of that phrase for their quotes to the media, we said it here first, three years ago - ed.).

In spite of a slew of very desirable products on the way from GM, there will be no flipping a switch to convince consumers that GM's vehicles are worthy of consideration on their own. GM has buried itself in a discount box. As a matter of fact, GM has now become America's "Big Box" Automotive Retailer. No matter how good their new products will be or how good the reviews are, there are legions of consumers out there who will only look at a GM product as a commodity to be procured with the best possible deal. And after five years of discount retailing, it will take years, not quarters, but years for GM to shed that image.

As for Ford and Chrysler, following GM into the abyss was more about ego than anything else. As I said a couple of weeks ago, Detroit automakers can't stand to see their competitors being successful - it drives them crazy and forces them to do monumentally stupid things. GM and Chrysler can't stand to see the Mustang being a hit, so now they want in to that segment, even though it will be 2008 before they're ready with their "me-too" entries. And GM and Ford can't stand to see Chrysler having a hit with their rear-wheel-drive 300/300C, so now they're investigating "in-your-face" designs of their own. And now, here we have Chrysler and Ford, eyeing GM's monster month of June and wanting in on the action, even though it requires suspension of all rational thought.

For Ford, it's yet another case of lacking a big marketing idea of their own, so they tend to go whichever way the market leads them - no big surprise here. For Chrysler, they actually believe in their hearts that they're smarter than everyone else - their potent brew of German-American Kool-Aid is apparently that good. So what do they do? They dredge up a prehistoric automotive icon who will signal to everyone once and for all that Detroit is out of touch, out of time - and officially out of ideas. Nice.</span>

[Gene Brink]

Hmmm? and now this from a pessimist (me). Seems to me that this sale may not actually be a bad thing in the long run for the following reasons:

? It probably would have taken a sale (deal if preferred) to sway a number of people to buy American rather than an import because of long entrenched beliefs that improving ratings would have taken years and years to have changed

? Although there will be a negative rebound (when the price goes up again [which it will] it will follow that a prospective buyer will wonder why on earth he/she should pay that much for an American car when an import will cost the same/less and be better) those that bought new cars will, hopefully, be impressed with the improved quality and when faced with another car purchasing decision will actually consider American ? at ?normal? prices because of that experience. Does not mean GM will ever return to previous "king-of-the-hill" status but could stop the downward trend of 40 years....

This is a long term gamble and the stakes are high but the end result could be a good thing. Time will tell but I do not think keeping the price "where it should be" because the product is worth it will sway anyone to buy GM product in great numbers.

Heck, if I keep up this kind of thinking someone will think I?m an optimist!

[Buicks Rule]

Employee pricing--sounds almost like underpricing Toyotas in the 70's to gain market share and convince the $ conscious shopper of their quality, longevity, low repair incidence/cost.

Before you can get repeat customers-you have to get CUSTOMERS.

Funny--the employee price has been available for quite a while for people who work for the right company. Work for a company that does a lot of business with GM/FORD/CHRYSLER--you got it--you get the special employee price--and have for years. Work for the right charity/nonprofit--you get a special deal too. Wonder if that includes some of the automotive journalists that are decrying this new marketing ploy?

What are the employee pricing policies of Toyota/Nissan/Honda? Do their employees pay list price or do they get a deal too? Is it on the order of 30% like the big three? Do they extend this 'courtesy discount' to the employees of major vendors/companies that do a lot of business with them?

When Sloan went after Ford in the 20's, they did it by offering a superior car at a low price. Then the customer came back to Chev/Pont/Oak/Olds/Buick for their next car.... Just like the Corolla customer in the 70's went back for another Toyota because their first one IMPRESSED them. And, who probably had no qualms at all about buying their first Lexus when Toyota decided to go after the high $ market.

Walmart hasn't become the juggernaut it is by selling at the maximum price the market will bear.

I have exactly the opposite view of Matt on this. GM/Ford/Chrysler have finally realized that they are going to HAVE to deal with the fact of life in the US ( outside the ivory tower of Detroit/UAW hourly rate/union state/union benefits ) that price sells, and that most of the country does NOT have the hourly rate/benefits that UAW and auto management earns.

They've got the quality up. They've got the fuel mileage up in most CARS. They've got solid product that should be long lived and relatively trouble free as most platforms are older builds so they should have the bugs worked out. Tooling is paid for. Cut the per unit profit down---sell, sell, sell and create a base of satisfied customers that in 5 years or so will be IMPRESSED with the service they have gotten and will return to that manufacturer or at least stop there first when they go shopping.

Maybe this is the first step in rationalizing this whole pricing issue whereby the 'employee' price and the regular person price will become closer over all. AKA employees no longer get such a ganga and the MSRP/Sticker becomes a more rational $ figure as well.

Reality is they are making money at the employee price. Maybe not a lot per unit but they ARE making money. And, they are making sales. Lots of sales. If the cars are as good as they should be, they are building a foundation for repeat sales in future years.

[Guest Skyking]

<div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body">This will probably pi$$ some people off on this forum, but I think it's high time this government does something about the foreign auto makers party-ing in this country.......! </div></div>

This is the way I see it. It's no doubt, the cars are selling. GM's sales are the best since 1986. People are buying because of price!

Why can't this government put a tax on import manufacturers & import buyers. I'm talking a hefty tax in lure of a gas tax. If you want an import, fine, you pay. Take the tax off at the pump. Do something for me, the American citizen for once instead of catering to every other nation and all their loopholes.

[Matt Harwood]

<div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body">This will probably pi$$ some people off on this forum, but I think it's high time this government does something about the foreign auto makers party-ing in this country.......! </div></div>

This is the way I see it. It's no doubt, the cars are selling. GM's sales are the best since 1986. People are buying because of price!

Why can't this government put a tax on import manufacturers & import buyers. I'm talking a hefty tax in lure of a gas tax. If you want an import, fine, you pay. Take the tax off at the pump. Do something for me, the American citizen for once instead of catering to every other nation and all their loopholes. </div></div>

I think something like this is unlikely. While it may make sense in the short run, all it will do is ultimately penalize the consumer with higher prices and let the domestic manufacturers continue business as usual. Not too many government officials want to be responsible for the things you want costing more. Would you vote for the guy who raised the gas tax? This is really no different.

In addition, the import manufacturers also see this coming and are scrambling to build more plants in the US. Toyota is building 3 new facilities, including one in Texas to build full-size trucks (talk about invading the home field!), Honda has another facility under construction to build trucks, and even Hyundai is getting into the act. So are Nissan and Mazda, who are both building additional facilities in California. And what do you do with Mazda, which is technically owned by Ford? Do they get taxed or not? What about European cars or are we going to make this an arbitrary thing and be accused of racism at the federal level (singling out Asian manufacturers)? See--it's not so easy.

Higher tarriffs won't affect the import-brand cars made in these domestic factories, and if they do find some way to penalize the cars coming out of these factories, all they'll be doing is penalizing the American workers who assemble them and the American consumers who buy them. I, for one, don't want the government telling me what I can and can't buy, and this is a subtle way of doing that. The government dictating behavior is a very scary thing to me. This whole issue is a double-edged sword, and I'm guessing that not many politicians are going to want to mess with it.

You also have to bear in mind that a good portion of our nation's debt is carried by the very nations that export most of their gross national product to the US. I don't think it would be a very good idea for our government to [censored] off the guys who own all our treasury bonds--they could sell them off en masse and crash our economy worse than 1929 in the span of about an hour. Talk about sticking it to the consumer! Now your new built-in-Detroit Chevy Impala costs $50,000 and a gallon of milk costs $9.00 beause the dollar has been so badly devalued.

Like most things in life, it's usually best to figure out how to play nice with others instead of trying to change the rules to favor yourself. I'm also a strong believer in the free market economy. If the domestic manufacturers would build better products and price them right, I think we can all agree that this would be a non-issue.

It took the domestics 25 years of dedicated apathy and sloth to get into this pickle, it'll take them longer than a few months and 2 or 3 sales campaigns to get out, good product or no. Make no mistake, this is a VERY DEEP hole the domestics are in, and it will take a lot of good product delivered over many, many quarters, supplemented with great service to level the playing field again. Right now, Toyotas and Hondas, on average, cost more than their domestic competition. Yet there are no rebates or 0% financing on them. So why do people buy them? That's the question to which the domestic manufacturers need to find an answer. They aren't buying Tototas because of "the deal" they get unless "the deal" means a good product (quality) at a price they feel is reasonable relative to the alternatives (value).

PS: I'm also in agreement with <span style="font-weight: bold">Buicks Rule</span> in that this current fire sale is probably getting new customers into the domestic showrooms, and that when these people buy again, they may choose to shop domestic again. That's a good strategy when you're healthy--from what I understand, GM has about 4 years of cash reserves at their current rate of hemorrhaging (less if they keep up this employee sale price program for more than another few weeks). They just don't have time to wait for these people to come back for another car at some point in the future. They need new customers NOW paying full price and spreading the word about quality and value. As the editorial I posted suggests, all these sales are really doing is <span style="font-style: italic">eroding</span> the perception of value and quality and reducing the domestics to the bargain basement. Once these low prices vanish, so will most of the customers. In fact, I believe they'll lose even more than if they hadn't done any sales program because people won't shop there after the prices go up again because they'll feel like they're getting ripped off. In addition, their pool of potential customers will be much smaller because anyone who was even thinking of buying a car already did. When the new cars hit the showrooms in September, who will buy them?

[Guest bkazmer]

so do you tax Toyotas built by workers in Kentucky or Chevrolets built by workers in Mexico?

[Dave@Moon]

Most consumers would say "Any car that's crummy enough to need tariff protection I don't want". Adding tariffs to "import" cars (most of which are made here anyway) would do more to add a mystique to them than it would an incentive to buy (what is already) the "cheap stuff".

Our cars are good enough, and after 15-20 years (when all the bubbling multi-colored 1994 Skylarks and Acclaims are off the road) people will know that. It's just going to be a matter of toughing it out and (at least as important) staying the course.

Now if GM would only add a truly modern car like the Prius (you'd have to own one to know) to their line they'd be set.

[Gene Brink]

<div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body">Most consumers would say "Any car that's crummy enough to need tariff protection I don't want". Adding tariffs to "import" cars (most of which are made here anyway) would do more to add a mystique to them than it would an incentive to buy (what is already) the "cheap stuff". </div></div> Actually millions <span style="font-weight: bold">DO</span> want cars that need tariff protection - Japan is very protective of it's home market and our cars have heavy tariff's applied for the few imported to Japan and Americans seem to love the Japanese marques. Maybe our government should just mirror the tariff rate on those cars still shipped here (would at least spur building new plants here with a lot of additional jobs...) <div class="ubbcode-block"><div class="ubbcode-header">Quote:</div><div class="ubbcode-body">

Now if GM would only add a truly modern car like the Prius (you'd have to own one to know) to their line they'd be set. </div></div> Amen!

[Guest imported_Thriller]

Anyone who thinks the American government isn't protectionist has got to change the colour of their glasses. We have "free trade" agreements with the U.S., but every time an interest group doesn't like the fact that Canadian products are cheaper, they get some judge to agree to tariffs, the Canadian industry complains, then the Canadians win in NAFTA dispute mechanisms, but it has taken years. Same thing with BSE...how can Canadian beef be so bad when there has been a confirmed case in the U.S. herd?

Sorry for that little rant....

I just saw ads this week that GM Canada is now offering employee discounts as well. I suppose the lucrative medium duty trucks don't count, so it wouldn't have mattered much to my truck to have waited a month.

[Guest Skyking]

Derek, when I talk about taxes & loopholes, I'm talking about Japan.....it seems to be a oneway street with their government. It should have stopped years ago, but like Matt mentioned above, there's too much involved now.

[Guest elk93001]

....Well, apparently, they've run out of talent in Auburn Hills, because this newest venture into Geezer Marketing with a dollop of washed-up Seinfeld refugee thrown in for good measure (Jason Alexander utters the hackneyed phrase, "If you can find a better car, buy it") is proof positive that the Chrysler Group is no better than the rest of 'em and that left to their own devices, they won't hesitate to take the whole sordid business of commodity automotive marketing down a few more notches if it will "break through the clutter."

Nobody sees the bright side of this. It really could have been worse....Someone else could have come up with the employee pricing for all and GM could have been the copycat and hired Roger Smith for their ads

[Reatta Man]

Well, looks like everyone is rested up and fully opinionated after the BCA nationals.....

Now a few thoughts from someone who has run an advertising agency and spent the last nine years in marketing.

1. EVERYONE selling ANY product is savy to price concerns. Wonder Bread knows how much more they can get for a loaf of 'premium' bread vs. the generic house brand; ditto for Pepperidge Farms and the rest. The principle is universal, from milk to gasoline to eye surgery. Ever wonder why dentists and eye surgeons run specials or coupons? THEY WORK!

Don't fault Detroit, Dearborn or Tokyo for being price-conscious. This latest thing is just a way to wake up consumers. In a world of "50%-70% off everything in the store" sales ads every weekend, GM's 'sale' is just a way of getting a consumer's attention. Remember, all a sale does is get a consumer to look at your product, whether it is making a trip to the mall or a car dealer. The sale is still based upon the product's perceived quality, available selection and a lot of other very subjective factors.

2. BUICKS RULE is right in his observation that it takes NEW customers before you can have REPEAT customers. Just think of the last time you decided you have found a better brand of something, from shampoo to coffee to tires. WHY did you decide you had found a better product? Price? No. That may have gotten you to TRY it because someone printed a $1 off coupon in Sunday's paper. But the next time you buy Gillette Shaving Gel for 30-50% more than the brand you used to buy it will be because of your satisfaction, not because of their temporarily lowered price. If you don't believe it, just ask a group of women why they buy Tide detergent, even though Tide is usually the most expensive brand on the shelf. The answer you will get? BECAUSE IT WORKS....

If Buick has their quality at a consistently high level, these people will buy another one in 2-5 years even if it costs more than another brand. PRICE SELLS, BUT QUALITY RESELLS AND RESELLS.....

3. Just remember that the sarcastic editorial writers that are criticizing the domestic makes for this sale probably have never built, sold or serviced a car or worked at a car-related business. They live in a VERY small world built on criticising the people out in the real world making things work and keeping the economy humming. All they know is what they hear from their other sarcastic friends at their snobbish cocktail parties who drive $45,000 BMWs that have lower quality ratings than a $20,000 Buick.

Just a short editorial from the 'real' world......

Joe

[Reatta Man]

According to this Detroit News article, the GM sale is doing two things that other sales have not done:

1. It is pulling people in who would not have bought a car, whether this month or in six months. This is NOT pulling sales ahead to lead to poor sales months in the near future.

2. It is pulling people in to buy NEW cars that would have usually bought USED. This is a HUGE potential market for all car makers.

[Guest greg72monte]

The preliminary figures show that GM is maintaining the June sales momentum into July, but they are running out of some of the more popular models. Their goal of reducing inventories seems to be on target.

[Guest greg72monte]

It looks like the "ME TOO" bandwagon has taken a little bit of wind out of GM's sails(sales?) but are still up 20% over July 2004. Buick up 20.4% on strong Lacrosse sales(79% higher than last year's combined Century & Regal sales). Ford up 29% and Chrysler up 32%. GM announced that they are extending the discount program another month, contrary to prior reports. I don't know how they can maintain these sales levels when they are running out of 2005 models to sell. With Ford & Chrysler extending their programs, they had no choice but to continue if they are to remain competitive. I am glad to see ALL domestic automakers benefiting with increased sales (even though Chrysler is not American anymore)

[BUICK RACER]

The employee discount for GM has been extended til Sept 6 for 2005 models. And for 2006 models many have price decreases, such as Silverado and Sierra Crew Cab models as much as $3000!

[Guest greg72monte]

The Buick Terraza is selling better (marginally) than the Pontiac Montana SV6 and Saturn Relay (Year to date/and this month). With the restructuring of Buick/Pontiac/GMC, GM says that this is one of the vehicles that does NOT fit the core of Buick. Granted, these are not huge numbers compared to other GM vehicles, but does it really make sense to cancel the Terraza when it is gaining momentum?(Increased from 801 per month in Jan. to 2985 per month in July) I am anxious to see how the NEW Lucerne is accepted by the buying public. All indications are that it is a really good car, but I will reserve judgement until I see one.

(By the way, Buick still sold more cars than Lexis last year/2004)

Buick 309,639

Lexis 287,927

(All sales numbers are from www.media.gm.com )