GM's Employee Pricing Ploy

MarketWatch is reporting GM brings back employee pricing promotion.

General Motors Corp. said Tuesday it will offer employee discounts on most of its vehicles to customers in an effort to spur sales and clear out inventory as part of the struggling automaker's centennial celebration.

The deal, a revival of a similar promotion that triggered a sales boom in 2005, is set to run from Aug. 20 through Sept. 2.

GM saw its U.S. sales surge 41% in June 2005 to an all-time industry record on the truck side when it first announced a sweeping plan to offer the public discounts generally offered only to employees.

The upcoming discounts cover "nearly all" 2008 model-year cars and truck as well as some 2009 models. The promotion excludes 2008 medium-duty trucks but includes the 2009 Chevy Cobalt and HHR, the Pontiac Vibe and G5 and the Cadillac CTS.

The latest employee pricing plan follows a surprise zero-percent financing deal GM announced back in June.

"This is a phenomenal offer for consumers," Mark LaNeve, head of GM North America sales and marketing, said in a release.

GM offered an average $4,214 per vehicle in incentive spending during July, according to car-buying research Web site Edmunds.com. That's well above Chrysler and Ford (F) and amounts to three times the promotional spending from Honda (HMC) and Toyota (TM).

Incentive Details

GM is offering over $4,000 in incentives and extending the offer to some 2009 models as well. It will not be long before the offer is extended to all 2009 models (and/or some other incentive program is put in place for 2009 models).

On June 24 GM announced price hikes on 2009 models by an average of 3.5%. I called it GM's Ridiculous Bluff. Indeed, GM is folding its hand already.

MarketWatch states that GM's incentives are well above Chrysler and Ford. Perhaps that is not the case. Yesterday, Ford sent me a promotional flyer offering $4,000 off and 0% financing, along with a key that may (odds are 1 in 250,000) start a car. I am not sure what models the $4,000 off applies to.

In 2005, GM's Employee Pricing ploy led to massive truck sales, at a loss of course, which is the only way GM can sell much of anything. And given that The Future Is Frugality (in that regard the Future Is Now), I suspect that $4,000 in incentives will not be enough this year.

Those who hold off for the "final clearance" might see $6,000 or more in incentives this go around. Realistically, it would behoove GM to not produce so much stuff people do not want in the first place. Of course manufacturing too much of the wrong stuff is a mistake GM makes every year. This year is going to be especially punishing.

Those who wait will be rewarded with lower prices. Consumers will quickly catch on. By the way, expect this mentality to spread from houses, to cars, to boats, to appliances, to furniture, to clothes. He who waits pays less.

For Gm, the key now is how much cash it has to burn through to unload dealer inventory. I am willing to bet the "losses will be greater than expected". Of course that bet has paid off nearly every time.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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