GM again offers huge discounts

November 15, 2005|By RICK POPELY | RICK POPELY,CHICAGO TRIBUNE

General Motors launched yesterday a year-end clearance sale that emphasizes price discounts up to nearly $9,000 on some 2006 models.

GM is offering its Red Tag Event, which also includes some 2005 models, six weeks after the automaker ended its employee-pricing program and switched to a "total value promise" that was supposed to reduce its reliance on costly incentives.

Without deep discounts, traffic dried up at GM showrooms in October, and sales were 26 percent lower than in October last year.

"They have no choice. They have to do something," said Arthur M. Spinella, president of CNW Marketing Research, a consulting firm in Bandon, Ore. that studies the auto industry. "People like their products, but they're not excited about them. If you lack something that's distinctive and new, you have to do the big deal."

Ford Motor Co., DaimlerChrysler AG and Asian carmakers will be forced to offer deals to counter GM, predicted analyst Rebecca A. Lindland of research firm Global Insight. The Asian brands are more likely to offer less-visible dealer incentives than to make offers directly to consumers.

Ford spokesman Jim Cain said Ford would consider its competitive position and decide soon whether to match GM's offer. Ford has a no-interest financing deal for some 2005 trucks and sport utility vehicles and a $1,000 discount on the 2006 Lincoln LS sedan.

Chrysler spokesman Kevin McCormick said the firm has a new discount program in the works and might announce details this week. Chrysler is offering $1,000 onl 2005 and 2006 vehicles.

GM has lost money in the past four quarters and is $3.8 billion in the red this year. Last week, GM said it would lower its 2001 earnings by $300 million to $400 million to correct an accounting error, and it faces potential pension liabilities of up to $11 billion from the bankruptcy of parts supplier Delphi Corp., which GM spun off in 1999.

GM is losing market share in the United States to Asian rivals and has announced plans to close several plants and cut 25,000 union workers in the next few years.

That has fueled speculation that GM might file for bankruptcy protection. In a note to investors last week, Bank of America Securities analyst Ronald A. Tadross called that "inevitable."

GM has said its turnaround would be led by products such as the Chevrolet Cobalt, the Buick LaCrosse and a family of new full-size sport-utility vehicles due early next year, but Spinella said the company lacks mass-market models that "capture someone's imagination. They really need a product home run like the Chrysler 300 or the Ford Fusion that generates strong floor traffic."

GM's market share rose to 32.8 percent in June, the first month of the employee discount program, but fell to 22 percent in October, after that sale ended.

GM spokeswoman Deborah Silverman said the Red Tag Event does not mean the automaker has abandoned value pricing, which emphasizes vehicle features and quality.

"We never said we would stop doing incentives. We said we would use them tactically, and that's what this is, a tactical program," she said. "Just about every manufacturer is going to have a year-end clearance event, and we have to be competitive."

The sale runs through Jan. 3 and covers most 2005 and 2006 Chevrolet, Buick, Pontiac and GMC models.

Red tags on the vehicles reflect rebates and other discounts and say: "The price on our tag is the price you pay. Not a penny more." GM used a similar slogan for the employee discounts.

Discounts vary widely by model. The biggest are on big SUVs such as the Chevrolet Tahoe, whose sales have been hurt by high gasoline prices.

According to GM's Web site, a 2006 Tahoe LT with a sticker price of $46,265 will sell for $37,306.53 during the sale, a discount of nearly $9,000. A 2005 Tahoe LT will sell for $33,969.96, an $11,045 discount, though 2005 models might be hard to find.

Analyst Lindland said GM might have picked the wrong time to try to kick its incentive habit. "Everyone who wants a new vehicle probably already has it," she said.

Rick Popely writes for the Chicago Tribune. Tribune staff reporter Jim Mateja and the Associated Press contributed to this article.

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