Wednesday, August 20, 2008

GM to make U-turn over sales incentives

GM to make U-turn over sales incentives

By Bernard Simon

Go To Original

General Motors has backed away from a two-year drive to wean itself off incentives, highlighting the increasing desperation of US carmakers to counter the steep downturn in demand.

The Detroit carmaker is extending to all buyers of its cars the same generous discounts enjoyed by its employees, covering almost all 2008 models and some 2009 models. The offer typically cuts 10-12 per cent off a vehicle’s sticker price.

The promotion, which will run from August 20 to early September, flies in the face of pledges by GM not to repeat employee-prices-for-everyone schemes.

Incentives seldom fail to bring more buyers into car dealerships. However, they cause significant long-term damage to manufacturers by lowering vehicles’ trade-in values and denting the image of their brands.

A GM employee-discount scheme in mid-2005 led to a burst in sales for a few months as prospective buyers brought forward their purchases. But it was followed by a period of severe “payback” in the form of sliding demand for its cars.

However, GM defended the latest promotion on Tuesday, pointing to unexpectedly weak demand. Total US light-vehicle sales slumped to an annualised 12.6m units in July from 15.2m in January.

GM’s sales dived by 27 per cent in the year to July.

“There have been some pretty fundamental shifts in the marketplace,” GM said Tuesday. “It’s to be competitive. You have to do something out there.”

GM reported a second-quarter loss of $15.5bn.

According to Edmunds.com, an online pricing service, GM offered an average incentive of $4,214 per vehicle in July, up 15 per cent from June and more than a quarter higher than July 2007.

GM’s Detroit-based rivals, Ford Motor and Chrysler, have also pushed up incentives in recent months. Perks offered by the three big Japanese carmakers, Toyota, Honda and Nissan, have remained roughly flat.

Separately, a consumer index published by the University of Michigan on Tuesday showed that US car buyers were becoming less satisfied with the Detroit manufacturers’ automobiles, even as their satisfaction with Japanese and European nameplates grows.

According to the survey, Americans' overall satisfaction with cars is rising, but rankings fell year-on-year for GM’s Buick, Cadillac and Chevrolet brands, Ford Motor’s Lincoln and Mercury and Chrysler’s Dodge brand. BMW, Honda, Toyota and Toyota’s Lexus luxury brand all improved.

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