General Motors (GM) says it will cut prices across most of its vehicle lineup to try to spark sales, reverse its market share slide, and, at long last, wean customers off the diet of cash rebates and discount financing it initiated in 2001 after the terrorist attacks on the U.S. shook consumer confidence and the financial markets.
The price cuts, which GM says will affect about 80% of vehicles sold by the world's largest auto maker, will kick in starting Jan. 11. Saab, Saturn, and Hummer models will be excluded because GM feels they're already priced appropriately, while Chevy, Buick, Pontiac, GMC, and some Cadillac models get the new price treatment.
OUTSIDE INFORMATION. With the new pricing, manufacturer's suggested retail prices (MSRP) on many GM vehicles will be cut by $1,300 on average, with some models slashed by as much as $2,500. GM is so confident in its new pricing scheme that the carmaker and its dealers have prepared ads for TV and newspapers starting Jan. 11 directing consumers to www.Edmunds.com and Kelley Blue Book (www.kbb.com), to compare GM vehicles against rivals, especially Toyota (TM), Honda (HMC), and Nissan (NSANY).
The new marketing campaign marks the first time GM has directed consumers to third-party auto sites in its ads. "We know that the customer is skeptical when it comes to buying cars and confused about all the different offers," says GM's sales and marketing chief Mark LaNeve. "But we know our products will stand up well on those sites, and people might not believe it as much if we directed them to our own sites," he says.
In the case of the Silverado pickup, consumers will find that the starting price is $2,000 below Ford's (F) F-150 and $5,000 below the starting price of a Dodge Ram -- before incentives are calculated. But LaNeve hopes that even if competitors increase their rebates, GM's simpler pricing approach will win the day.
KEEP IT SIMPLE. LaNeve says the strategy is not only designed to make shopping for vehicles easier but is a step in getting GM's value and quality message across. "We see research that shows consumers believe that competing Japanese products are cheaper than ours when they aren't, and that they have higher quality and fuel efficiency when they don't."
Edmunds.com and kbb.com allow consumers to compare vehicles on one screen based on price, quality ratings, and incentives. By simplifying pricing and reducing the incentives that have to be advertised, says LaNeve, he plans to channel ad dollars that would be spent hawking deals into "more emotionally focused brand advertising."
That suits GM's competitors just fine. Chrysler Group (DCX) sales and marketing chief Joe Eberhard says GM's strategy mirrors the one Chrysler began in 2004, when it reduced the sticker prices of redesigned vehicles such as Chrysler minivans and the Chrysler 300. "The closer we can price the vehicle to what the consumer actually pays, the more we can market the features and the other reasons people should choose our brand," says Eberhard.
STORYTELLERS. Chrysler hasn't been able to use that strategy so much in the SUV category, which is awash in incentives since last year's gas price hikes weakened demand for larger vehicles. And the Auburn Hills (Mich.) carmaker actually topped GM and Ford last year in average total incentives per vehicle, according to CNW Research.
Even with the price reductions, consumers won't be paying as little for many GM vehicles as they did when GM ran its "employee pricing" promotion last summer. The starting cost of the Silverado pickup at that time was $16,500, about $400 less than what today's promotion delivers. So, on a per-vehicle basis, GM stands to earn more than it did last summer, and it's also hoping the promotion drives up demand and sales volume, which in turn keeps factories running at more profitable levels for the auto maker.
GM is trying to set the stage for the launch of several important vehicles later this year, which it doesn't want to have to support with "deal" marketing. "We have new model names and great stories to tell about new vehicles, and we don't want them getting lost in a sea of sale advertising," says LaNeve.
NO WAL-MART STRATEGY. Analyst Joe Phillippi of AutoTrends Consulting, in Short Hills, N.J., says GM's move smacks of desperation at a time when things are bad for the company. "But the closer GM gets away from having to advertise the deal first and the product second will be good for it in the long run."
The big challenge for GM is that it has trained customers to expect some more lucrative sales incentive to be just around the corner, and consumers may decide to sit out the market and wait for the company to get desperate enough to slather more rebates on vehicles. "That's certainly a danger," admits LaNeve. "But these prices are only slightly above where our lowest prices have been before, and we aren't going back to that way of pricing again."
LaNeve insists GM isn't shooting for a "Wal-Mart" strategy in which consumers shop at a GM dealership because they know prices will be the lowest they'll find. "But do I want people to think they can come to a Chevy dealership and always get the best value when you compare what we offer vs. what a competitor offers."
DESIGN OVER DISCOUNT. GM is facing a decimated stock price and increasing pressure from vocal shareholder Kirk Kerkorian who holds 7.8% of GM stock, falling debt ratings, and financial losses (see "Kerkorian's Road Map for GM"). Kerkorian's representative Jerome York on Jan. 10 gave a speech in Detroit calling for such measures as a halving of the dividend, the closure of Saab cars, and sale of Hummer.
That's a lot of negative noise in the marketplace surrounding GM just when its most promising vehicles in two decades -- those developed under GM product czar Bob Lutz -- are about to hit the market (see BW, 1/16/06, "GM's Lutz: In It for the Long Haul"). The more the struggling auto maker can market those designs rather than their discounted prices, the better off it will be.
Kiley is Marketing editor for BusinessWeek in New York
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