General Motors Death Watch 18: Discount This

When my Mom returned from a major shopping expedition, she'd justify her voluminous purchases by telling Dad how much money she'd saved. "If you save enough money we'll go broke," he'd remark. The reverse is also true. To wit: General Motors was losing $2331 per vehicle BEFORE they launched "Employee Discounts for Everyone". As it's safe to assume that the promotion's new, lower prices mean new, slimmer margins, The General's latest sales gimmick is actually hastening the financial demise of the world's largest automaker.

I know; it's got to the point where you start to feel sorry for these guys. I mean, what would YOU do if you had 1.2 million new cars sitting on dealer lots and abandoned airfields, waiting for Mr. and Mrs. Godot to walk through the showroom door? (Remember: new vehicles continue to emerge from The General's sausage-making machine 24/7.) The temptation to just give the damn things away must have been intense. Instead, GM had to pay for the privilege. It's true: when a manufacturer loses money on every sale, they're literally paying customers to buy their product. According to recent projections by Edmunds.com, GM's lastest incentive program will cost them nearly half-a-billion dollars. And that's only ONE of the ways this employee discount thing stinks.

Traditionally, companies don't discount their inventory until new and improved products are ready to take their place. Traditionally, the auto industry was no different, offering year-end and clearance sales at the appropriate moment. But times have changed. New and refreshed models pour into the goldfish bowl throughout the year. By discounting all of its products at the same time without the slightest regard to the multi-various timing of their replacements, GM has painted itself into a corner. How can you possibly justify a return to "normal" prices for the same old vehicle?

You can't. Automotive News reported yesterday that GM has cut prices on 85 – 90% of its 2006 Buick, Chevrolet, Pontiac and Saturn models. The Bean Counters still have their finger in the air regarding Saab, GMC and Hummer, but it's only a matter of time. Cadillac is supposed to get a "marginal" price hike, but don't you believe it. Bottom line: GM has cleared its inventory and hoisted its market share back up to 30% by permanently shrinking its profit margins. This after Rabid Rick Wagoner stood in front of GM shareholders and made incentive elimination a central plank in his recovery plan. Again.

The program's affect on GM's branding is equally disastrous. All eight GM brands are now discount car companies (a laughable concept for a corporation with such an enormous cost structure). While budget sales are almost a good idea for Chevrolet and Saturn, the emphasis on price damages the rest of the portfolio. Cadillac, for example, has spent the last twenty years trying to prove itself equal to or better than high-end German and Japanese imports. Once again, Caddy is the poor man's BMW. Equally worrying, bargain hunters are about as brand loyal as shopzilla surfers. And once they've bought a GM product, who's left? People who'll now perceive all GM products as, well, cheap.

And what of loyal GM customers who didn't cash-in on GM's fire sale pricing? The Employee Discount for Everyone program certainly isn't doing them any favors; it's instantly erased value from their current set of GM wheels. When trade-in time rolls around, they'll not be pleased to discover that all these penny-pinching newbies got a better deal at both the front and back end of the sales process. In effect, GM stiffed them. Of course, they're probably getting stiffed already anyway, what with finance charges and the extra cost of everything extra.

In case you didn't realize it, GMAC is the real beneficiary of this particular sales gimmick. You could even say that GM's current strategy is to make their cars a loss leader for their finance arm. It is, after all, the only solidly profitable part of the entire GM empire. But I reckon that would be giving GM's management team too much credit. I'm convinced these guys are genuinely clueless. Check out Marketing Mark LaNeve's rearguard action on the discount program's effect on GM branding, outlined in an email to The Detroit News:

"This program gives us a great platform to get out our quality and fuel economy story and showcase our products. The TV ad does not mention a price or a rebate. We simply say, 'It's a great price, you pay what we pay.''

In fact, some of the TV ads DO mention a price at the end: a typical monthly ownership plan for one of the cars. What planet are these people on? Don't they realize that the Employee Discount for Everyone program is a short-term solution to their bloated inventory that creates long-term problems for the entire corporation? Do they even care?