Slashing sticker bloat

General Motors' `employee pricing' led the way to more sales and the company may do the same with lower suggested prices.

July 31, 2005|By Paul Adams | Paul Adams,SUN STAFF

For the past 60 days, Jerry Herbert, general manager of Anderson Chevrolet in Baltimore, has witnessed the success of General Motors Corp.'s much-copied "employee pricing" promotion, in which customers get the same discount as the carmaker's own workers.

Buyers have flooded showrooms, drawn by the no-haggle pricing and rebates that go on top of the employee discount. But behind the frenzy, Herbert said, is a hard lesson for General Motors, which has struggled for answers as its North American operations have lost $2.5 billion in the first half of 2005.

"I think [the success] of employee pricing just shows that maybe the cars are marked up a little bit too much on the retail side and I think that GM would be wise to take a look at their pricing structure," he said.

That message was heard loud and clear at GM, which will bring its "employee pricing" program to a close tomorrow. In a move that could affect dealer profits and alter the way people buy cars, GM says it will reduce the manufacturer's suggested retail price, or MSRP, on many 2006 models and throw in more options for the same money.

If copied by the other Big Three automakers, industry analysts say, the moves could take some of the sorcery out of car pricing and make it easier for buyers to compare prices. And it may diminish much of the haggling with salespeople that goes with buying a car, a practice that turns off many consumers.

It also could create friction with some dealers, who already are grumbling about having to accept smaller profit margins as a result of the "employee pricing" program.

Some worry that a lower MSRP will mean fewer rebates to drive sales and leave dealers less wriggle room to negotiate with customers and compete with each other. Instead, cars will start out at a price closer to what consumers typically end up paying after shopping around, comparing rebates and negotiating for hours.

"Hopefully it will change the car buying experience at the domestic Big Three, which typically have been so dependent on incentives for sales," said Rebecca Lindland, a senior market analyst for auto research firm Global Insight.

Sales rose 46.9%

The new pricing strategy comes on the heels of what GM is calling its most successful sales promotion in history.

The "employee pricing" program drove sales up 46.9 percent in June, the latest figures available. Truck sales soared 68 percent, setting an all-time sales record. Ford Motor Co. and Chrysler initially balked at the promotion, but rolled out their own versions after watching GM's sales zoom.

"It's amazing what in 60 days this promotion has done," said Alex Hafer, general manager and part owner of Koons Chevrolet in White Marsh. "We really caught everybody by surprise."

Hafer acknowledged that the sales promotion took a bite out of the dealership's profit for each car sold. But he said Koons made up for the smaller margins by selling more cars.

"Look at Wal-Mart," he said. "Volume is the name of the game."

Elinor Santor of Ellicott City was shopping for a new car at Anderson Chevrolet in Baltimore Friday, saying she thought the sale made it a good time to buy. After putting 110,000 miles on her 11-year-old Oldsmobile, Santor was considering a Buick LeSabre.

`Quite a savings'

"The GM pricing and rebates make it affordable," said Santor, 65. "Otherwise, I would fix my old car and drive it for another couple of years.

"I think $30,000 for a car is a lot of money," she said. "Now, they're down to $22,000 for the same car. That's quite a savings."

Dave Coyne, general manager of Fox Chevrolet, said the promotion also brought in scores of customers trading in Toyotas and Hondas for new GM cars.

"I think what this program has done for GM is it's got us exposure to a customer base that we may not normally see," he said.

That was the case with Tony Amato of Baltimore, who bought a sport utility vehicle Thursday from Anderson. It was his first American car purchase since the late 1980s.

`Got a good deal'

"I saw the ads on television, I came in and it was very simple," said Amato, 69, who paid about $22,500 for a Buick Rendezvous. He said the price matched what was advertised, the deal took less than two hours to seal and it required little guesswork.

"Before, there was a whole lot of changing of figures, back and forth with figures until I was totally confused," Amato said. "They ought to sell cars like this all the time.

"I got a good deal, I know I did," he said. "I feel real good with that and I feel real good buying an American car."

Brett Hoselton, an auto industry analyst with KeyBanc Capital Markets, said it was dealers who took the brunt of the discount. But the GM promotion guaranteed a small profit for each vehicle sold, which means gross profits actually increased for most dealers, who saw their sales climb an average of 40-plus percent.

Wriggle room

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