GM expects sales drop, stays with lower prices, incentives

March 28, 2006|By RICK POPELY AND JIM MATEJA | RICK POPELY AND JIM MATEJA,CHICAGO TRIBUNE

General Motors Corp., facing growing pressure to show positive results, vowed yesterday to stick with lower prices and reduced incentives despite losing market share in the first quarter.

GM said it expects its U.S. sales to have declined in March and its market share for the month to fall to about 24 percent, down more than 2 percentage points from a year ago.

When GM cut prices on 57 models an average of $1,300 on Jan. 11, it promised to reduce a long-standing reliance on costly incentives that provided sales spikes but contributed to a long-term decline.

"We're sticking to that strategy," Mark LaNeve, sales and marketing vice president, said during a conference call with reporters.

He insisted that GM won't follow domestic and Asian rivals in boosting incentive spending this year.

"Been there, done that, and I know what the ending looks like," LaNeve said. "That's not good for our brands and customers."

GM, which lost $10.6 billion last year, is under pressure to turn around its North American automotive operations while it confronts major labor and financial issues.

The most immediate of these is the negotiations with Delphi Corp. and the United Auto Workers union on cutting wages and benefits at the bankrupt supplier.

Delphi made a new proposal last week that could cut UAW wages to about $16 an hour from $27. If the UAW doesn't agree by Thursday, Delphi says it will file in U.S. Bankruptcy Court on Friday to have its union contracts voided. That could trigger a strike and halt GM's North American production within days.

The UAW acknowledged that Delphi has presented a new wage proposal but would not comment on the specifics.

Delphi had no comment.

The Detroit News, citing sources familiar with the proposal, reported yesterday that the proposal called for cutting Delphi's UAW wages to $22 initially and to about $16 an hour eventually. GM is involved in the talks because it spun off Delphi, its largest supplier, in 1999.

During the briefing on GM's sales and marketing strategy yesterday, LaNeve said the lower prices announced in January have helped GM cut incentives, and new models have helped raise average transaction prices, the amount consumers pay for cars and trucks.

However, GM market analyst Paul Ballew said the automaker will report lower sales this month.

Sales to retail customers have stabilized, Ballew said, but GM is reducing sales to daily rental fleets, and truck sales are a little softer than the automaker expected. He did not say how much GM expects sales to drop, but consumer Web site Edmunds.com predicted sales will be down 11 percent, to 373,000 vehicles.

March sales are to be reported April 3.

Using numbers from the Power Information Network, the data-gathering unit of J.D. Power and Associates, GM said it has fallen to third in incentive spending behind Ford and the Chrysler Group after leading the industry for most of the previous five years.

Power says GM spent $2,702 per vehicle in March, down $1,623 from a year ago, as Ford spent $3,583 and Chrysler $4,133. Power data also show that GM spent $1,000 less per vehicle on its full-size pickups than did Toyota.

Overall, GM's average transaction prices, at around $27,000, are up 3 percent to 4 percent this year. The 2007 Chevrolet Tahoe is up nearly 25 percent, to $41,360, and the revamped Chevrolet Impala up 14 percent, to $21,573.

LaNeve said GM is attracting more consumers by making direct comparisons to rivals instead of promoting discounts.

"We don't want to be known as the incentive leader. We want to be known as the value leader," LaNeve said.

"If transaction prices are up and incentives are down, it means GM is doing what it said it was going to do, and that's a good sign," said analyst Rebecca Lindland of industry forecaster Global Insight.

She said higher transaction prices are especially significant, because "it means they are selling more well-equipped vehicles," which could help restore GM to profitability.

But Jim Hossack, a vice president at consultant AutoPacific, said it will take more than a few months to see whether GM's pricing and marketing strategy is working.

"They have some new models and have cut the prices on some and reduced incentives, but I want to see longer term results," Hossack said.

He said new models such as the Tahoe, which went on sale in January, may initially sell briskly and at higher prices, but sales and prices typically fall over time.

GM has not forecast U.S. sales or market share for the calendar year, and Ballew cautioned that higher retail sales may not offset reductions to daily rental companies.

GM will sell about 700,000 vehicles to rental companies this year, down from 793,000 last year.

"Some months that is going to have a negative impact that will be pretty significant," he said. "Total sales results will be a difficult comparison."

Last week, GM agreed to help Delphi try to get out of bankruptcy by offering $35,000 retirement incentives to 13,000 Delphi workers and taking another 5,000 back to GM plants.

GM has offered early retirement buyouts to all of its 113,000 union workers in a bid to trim its payrolls.

Today, it is expected to eliminate hundreds of engineering jobs in what employees have already dubbed "Black Tuesday."

GM also is trying to sell a majority stake in its GMAC finance unit to raise cash and will restate earnings from 2000 to the first quarter of 2005 because of accounting errors it disclosed March 16.

Rick Popely and Jim Mateja write for the Chicago Tribune.

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