General Motors Corp. is about to pull the plug on a wildly popular discount program under which GM dealers have been selling new cars and trucks to the general public at the same low prices the automaker’s employees pay.
“It is our intention to end the employee discount, as previously announced, on August 1,” GM spokeswoman Deborah Silverman said on Wednesday.
She declined to comment on what new promotions or discounts would be offered instead of the employee discounts. But she said the automaker would be focused in August on its pricing and marketing strategy for 2006 model-year vehicles.
That strategy, as outlined by GM Vice Chairman and Chief Financial Officer John Devine on a conference call last week, will include lower sticker prices and increased vehicle content or features on many models.
That sounds like a dicey game plan, after deep discounting and high costs contributed to a $2.5 billion loss in GM’s North American automotive operations in the first half of the year.
But GM is convinced its so-called “value pricing” strategy will deliver strong sales. Sticker prices are especially important among the growing number of car buyers who do their shopping on the Internet.
GM’s employee discount plan, touted by industry observers as one of the most successful consumer incentives program in automotive history, has been in effect since June 1.
It gave GM a 41 percent increase in its U.S. sales in June and the automaker’s retail sales were up 42 percent in the first half of July over the same period a year ago, according to J.D Power and Associate’s Power Information Network, which compiles retail transaction data from more than 6,200 automotive franchises.
It has squeezed profit margins for GM and its dealers alike, however, and ending the program makes sense since GM’s inventories of unsold 2005 model-year vehicles are now quite low.
“It wouldn’t make a whole lot of sense to continue it,” Brian Gerts, a new car sales manager at Bill Crispin Chevrolet in Saline, Michigan, told Reuters. “There’s practically no product left out there. We’ve sold everything.”
Gerts said he was sure that GM would come up with some new deals to help clear out remaining dealer inventories of 2005 models. But he also spoke hopefully about GM’s revamped model lineup for 2006.
“It’s easy to sell cars if you’ve got product that people really, really want. That’s I think what they’re banking on,” Gerts said.
Ford Motor Co. and DaimlerChrysler’s U.S.-based Chrysler division both matched GM’s promotion with employee-discount programs of their own last month. It was unclear on Wednesday if both would follow GM’s lead again by dropping the programs when automakers report their U.S. sales for July next Monday.
