GM sales leap with broader discount

Employee price break for all is the attraction, not the cars, analyst says

June 21, 2005|By Rick Popely | Rick Popely,CHICAGO TRIBUNE

CHICAGO - General Motors Corp. extended its employee discount to all customers this month, and it is enjoying its strongest month since September.

On big sport utility vehicles such as the Chevrolet Suburban and Tahoe, sale prices can be more than $9,000 below the sticker price after the discount and rebates are applied.

GM's share of retail sales in the first 12 days of June was 30.3 percent, up almost 8 percentage points from May and 9 points from April, according to the Power Information Network, a division of J.D. Power and Associates.

As good as that sounds, Jesse Toprak, senior analyst for consumer automotive Web site Edmunds.com, says it is merely a new wrinkle in GM's practice of offering big discounts to make sales. "It did the trick in the short term," Toprak said. "GM will win the battle this month, but will they win the war?

"If they take it away, sales will go down. People are buying the employee discount, not the product."

Showroom traffic up

That's just what the automaker has said it wants to get away from in its revitalization program.

Trade newspaper Automotive News reported yesterday that some dealers expect GM to extend the offer to July 31 from its July 5 expiration.

"We haven't made any decisions about continuing the program," GM spokeswoman Deborah Silverman said. "We're very pleased with it so far. Our dealers are telling us that showroom traffic has increased considerably."

Silverman called the employee discount "a short-term program that is on 2005 models only."

GM extended its employee discount to all retail buyers June 3, letting consumers buy vehicles for 3 percent to 4 percent less than dealer invoice, the amount dealers pay to purchase vehicles before incentives, as well as receive cash rebates.

The automaker has vowed to reduce incentives by pricing its vehicles closer to typical transaction prices. Silverman said some 2006 models will be priced lower to reflect that strategy.

GM's sales have been on a roller coaster since September 2001, when it jump-started the industry with zero percent financing. Since then, the company has periodically boosted sales with new programs, only to see sales sag when programs ceased.

Production cut

Its sales are down nearly 7 percent this year, and its share of the market has fallen 1.5 points, to 25.7 percent. Though it has cut North American production by 10 percent this year, GM still had more than 1.2 million cars and trucks in inventory at the end of May. It wants to reduce its inventory to 1.1 million vehicles by year's end.

Edmunds projects GM will sell 420,000 vehicles this month, 9 percent more than in May and 12 percent more than in June 2004, when its sales were down 12 percent from a year earlier.

Toprak said it was too early to say how much GM will spend on incentives this month. Edmunds said GM averaged $3,729 per vehicle in May, and estimated the employee discount will add about $1,040 to the incentives.

Edmunds bases its numbers on sales data from 3,000 dealerships nationally.

For GM to kick its addiction to incentives, Toprak says, its models need to be priced right and have compelling designs and features such as the Chrysler 300, which sells briskly with few discounts.

GM has such a car in the Pontiac Solstice, a two-seat convertible due in the fall, but he says GM needs a string of vehicles like that.

"It's not a magic formula, but it's hard to get it right," he said.

The Chicago Tribune is a Tribune Publishing newspaper.

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