GM plans to halt discount program that eased huge inventory backlog

Employee pricing to end Monday

Chrysler and Ford may follow

July 28, 2005|By Jim Mateja | Jim Mateja,CHICAGO TRIBUNE

General Motors Corp. intends to end its program of offering employee discount pricing to everyone and announce its 2006 model year pricing strategy Monday.

"The employee pricing program did as intended; it reduced inventories of '05 models," GM spokesman Jeff Kuhlman said yesterday, referring to the sales incentive program that offered the public the same discount GM gave its employees.

"But the success was in putting the focus on the product, and not the deal, because everyone knew the price going in," he said.

And that's what GM will continue for the new model year. The so-called "value pricing" strategy is aimed removing the padding that had been added to stickers to provide the cushion necessary to offer rebates.

"That's what we want to do for '06, shift away from `What's the deal?' and `How many dollars off?' and focus on the product," Kuhlman said.

Ford and Chrysler also are offering employee discount pricing through Monday. Both said yesterday that they'll decide what they'll do after GM makes its move next week.

Employee discount pricing was so successful, with sales rising 47 percent in June alone, that GM inventories of 2005 vehicles are down considerably.

Merrill Lynch analyst John A. Casesa estimated that GM inventories have shrunk to 800,000 units from 1.2 million before the employee pricing.

"Dealers may have fewer of some models than they'd like, which proves employee pricing worked, but it's not a case of dealers having nothing to sell," Kuhlman said. "And we have '06 product in the pipeline that will arrive this week and next."

Inventories of well-equipped vehicles reportedly are low because those are the ones consumers snapped up under employee pricing.

"In May, the average sticker price on vehicles sold was around $29,000, but in June it went up to $31,800 as people bought vehicles with everything on them," said Arthur M. Spinella, general manager of CNW Marketing Research, who watches the auto industry. "But the average sticker price on vehicles sold went to $30,600 in July, as fewer cars with high content were left, and cars with sunroofs, for example, were bought up.

"Dealer inventories should be in decent shape, but cars with high content levels may be sparse, and some dealers will have a dry spell until late August."

Kuhlman said the 2006 pricing to be announced next week is important, because many consumers compare prices via the Internet and take GM off the shopping list when its padded stickers make prices higher than those of its rivals.

As reported, GM will reduce stickers by raising the amount dealers pay for the cars while lowering option prices.

"In the past, we operated backward from the competition," Kuhlman said, "charging dealers less for the base vehicle but more for the options."

It's believed that up to half of GM's models will carry lower sticker prices for 2006. But Kuhlman wouldn't say.

The Chicago Tribune is a Tribune Publishing newspaper.

GM DISCOUNT PROGRAM

WHAT: General Motors Corp. said yesterday that it would end its employee-discount incentive program at the close of business Monday, as scheduled.

PROGRAM: The program allows consumers to pay the same price as GM employees. It began June 1 and was to end July 5, but GM extended the deal through Monday after sales soared. The discount applies to most GM vehicles and helped boost automaker's sales by 47 percent in June.

COMPETITORS: Ford Motor Co. and DaimlerChrysler AG matched GM's employee-discount deal in July but haven't said whether they'll extend the deals beyond Monday's expiration date.

Associated Press

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