By on April 19, 2011

Speaking at the New York Auto Show today, GM CEO Dan Akerson defended his inconsistent approach to sales incentives, telling the AP [via The Washington Examiner]

I feel pretty good about that. I think we’re in pretty good shape. I don’t want to be a predictable competitor. I don’t want the other guy to know exactly what I’m doing.

For some context,

GM surprised the industry — and Wall Street — when it raised discounts by $400 per vehicle in January and February. Most automakers didn’t raise them because demand for new vehicles has been rising in line with supply…

GM pulled back on its incentives in March, spending $600 to $800 per vehicle less on the deals. But it was too late for some investors, who shied away from the company’s stock because higher rebates lower car companies’ profits.

But does Akerson’s upside, the element of surprise, outweigh the downsides of his hot-cold incentive strategy?

Automotive News [sub] provided evidence that GM’s incentive strategy might not be ideal earlier this month, when it reported

After a blowout February, Buick-GMC dealer Tim Dunne came down to earth last month. Sales at his New Jersey store cooled from 73 new vehicles in February to 59 in March.

The main reason: General Motors ended a loyalty cash incentive and lease pull-ahead deal that had been wildly popular with customers.

“It was kind of sobering to come off that quickly from those incentives,” said Dunne, dealer principal at T&T Coast Buick-GMC in Sea Girt, N.J.

GM’s response, via sales VP Don Johnson:

We’re very sensitive to making sure that the dealers aren’t on and off the gas too much. You’d like it to be a smooth acceleration and/or deceleration. I think we’ve done a pretty good job of that.

With sales up overall, GM’s dealers (90% of whom are profitable) could have it worse, but the complaint echoes through GM’s history. TTAC has deep archives of dealer complaints about GM’s confusing, inconvenient incentives systems. Akerson’s ability to make virtue of a vice is new, but otherwise it seem that GM still has work to do to make its incentives more effective.

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30 Comments on “Do GM’s On-Off Incentives Help Or Hurt?...”


  • avatar

    perfect example of the dearth of knowledge about retail automotive. straight out of Return to Greatness was the loyalty incentive that drove sales (see Step Six). yeah I shared this with Mark and Joel both. they tried taking pieces not realizing marketing is a coordinated thing and more than just the strategies, you have to implement them correctly. the best joke in the world isn’t funny if you don’t tell it properly. rather than discontinue the loyalty offer, GM should have streamlined the other nonsense they spew. poor Akerson, he’s way in over his head. you can’t turn this business on and off like a light switch, that’s a fool’s folly and further evidence of why so many executives are jumping ship. and Ewanick? a disaster in the making…guaranteed. this CMO claims on and off again incentives as not letting competitors know what he’s doing, but in essence it reveals that he himself has no idea.

    want to see something from someone who does know? read this, written over 6 years ago. I tried to tell them, they refused to listen. still do.

    http://generalwatch.com/editorials/editorial.cfm?EdID=2

    • 0 avatar
      mike978

      Just read your link – great document and some really good ideas. I had hopes for Ewanick, time will tell.

    • 0 avatar
      SVX pearlie

      There are some incentives which should stay, and Loyalty should be a given – it’s hard to get a Customer, so give a little to keep them.

      Yes, GM has too much on the hood, and Yes, generally, incentives should go down – that’s a sign of discipline. But do it intelligently and over time, not whipsawing things quarter over quarter or month-by-month.

      Plan the incentives so the Customer isn’t surprised, and always thinks they’re getting a good, fair shake.

    • 0 avatar
      FromaBuick6

      Sir, you make entirely too much sense.  Things like returning to the September new model roll out…I was just complaining about this over the weekend with the new Malibu.  Since you wrote this plan, the trend of early unveilings has gotten worse, not better.  And incentives have become such an ingrained part of new car sales – especially for the domestics – that most buyers likely wouldn’t even consider a GM product without lots of cash on the hood, no matter how good the car is.  This “On-Off” stuff is nonsense…on an “off” month the customer is going to walk right back out the door.

      Ewanick?  They hired him because he ran one good ad campaign for what was already the hottest carmaker in the industry.  So far, he’s a lot more of the same.  An “outsider” is only effective if they are willing to change the corporate culture rather than assimilate into it.  And Akerson is Roger Smith reincarnate.

    • 0 avatar
      Jimal

      The problem with incentives is that they are an addictive drug and kicking the habit is difficult. Once the decision is made to reduce (or eliminate) incentives, the first, middle and last step is to have some discipline and recognize that sales will suffer in the short term. There is no avoiding this but if you can resist the urge for a quick and easy fix your sales will return to their incentive levels or even higher. All it takes is patience and a little vision.

  • avatar
    mike978

    I agree – Akerson is talking nonsense and trying to make a virtue out of ineptitude. Regarding the NJ dealer I wouldn`t have considered 73 to 59 a big change since you are always going to get some variance – if it continued to trend downwards then that would be a concern.

  • avatar
    dwford

    On/off incentives just cause consumers to wait for the next “on” cycle. Better to have the right price first and a modest, consistent incentive.

  • avatar
    Zackman

    Let’s all take a very deep breath here about incentives. Who started all of this? Chrysler. There was a pretty bad recession in 1974 and Chrysler started the rebate selling tactic along with their tent sales that summer.

    Once you start a sales ploy like that, it takes on a life of its own. It doesn’t take very long for people to perceive that the value of an OEM’s cars aren’t really worth anything near the sticker price. How do you stop it? Good question. Stand pat on the price you need, allowing for a bit of traditional horse-trading and that’s it? If you need to slightly reduce prices to be in line with demand, and be willing to suffer a hopefully temporary loss of market share and if your vehicles really are worth the price, you’ll eventually come out ahead. However, since no one is willing to do that, you have what you have. Sorry, but as I’m not an economist, that’s the best I can come up with. Anyone have a better idea?

    Buickman, what’s your opinion?

    • 0 avatar
      MikeAR

      On this I agree, all incentives do is give customers the idea that you are deliberately charging too much in the first place and that the incentive price is the real price. Incentives are the steriods of the business, they have a positive effect at first but long-term, they are killers. Another thing is that incentives do nothing to promote customer loyalty, they turn them into mercenaries looking for the best deal.

    • 0 avatar
      FromaBuick6

      And don’t forget the “Sales bank.”

      The irony is that these idiotic tactics always start when somebody who came up through finance side of the business is running the company.

    • 0 avatar
      dwford

      Zackman, 

      You stop it by shocking the customer with an outstanding vehicle. Look at what Hyundai has done with the Sonata. They had to give away the 2010’s with huge rebates, but now, 15 months after the 2011’s came out, still no rebates on the 2011 and it is still selling like hotcakes.

  • avatar

    there’s more marketing common sense in these comments than in the whole of General Motors. customers are just people, they want to be treated fairly, with respect and appreciation. same goes for employees, retirees, dealers, salespeople, and suppliers. but like good old Marek Fuchs says “at GM, they just don’t get it”.

    hate to sound like a broken record but darn if they would only implement Return to Greatness, sales and profits would soar and the competition would be sucking our exhaust. but likely not…at GM the results don’t change, only the excuses ( and occasionally the faces).

    • 0 avatar
      jkross22

      “at GM the results don’t change, only the excuses” – wow, that’s a keeper.  My favorite is “excuses only sound good to the people making them”.
       

  • avatar
    golden2husky

    A cut for loyalty makes sense.  But if I was in the market and if a GM product was my likely choice, I would be waiting for the next incentive.  Most folks (I am guessing) don’t have to buy a new car tomorrow.  Perhaps those who had their car totaled might, but those who drive their car to their graves usually opt for used…

  • avatar
    BuzzDog

    As an overpaid consultant once told me – unless you’re willing to stand by your value proposition in the long term – what’s used to attract the customer will ultimately be the same thing that causes you to lose the customer. In other words, attract a customer with price, and watch him leave when prices increase…attract him with high quality, watch him leave when quality goes down…and so forth.
     
    Price is often a terrible strategy for building customer loyalty. Before I’m accused of taking leave of my senses, consider that price-driven shoppers evaporate when prices increase. They generally don’t give a whit about the other values built into the equation. And a price-driven strategy is a vulnerable strategy, because it’s all too easy for the competition to meet (or beat) it.

  • avatar
    mcs

    To a certain extent, the incentives degrade the product as well. It sends a message that people don’t want the product for some reason so they have to start paying them to get the cars off of the lot.

  • avatar
    tiredoldmechanic

    The incentives do work, sort of. Last May I bought a 2010 Sierra that stickered for $41,000.00 Canadian and paid $29,500.00. I would never have paid 41 large for a pickup of any type so I guess the money on the hood worked that day. Problem is, everyone I know is now trained to wait for the next round of incentives and won’t even drive through the lot if they aren’t being offered at the moment. Worse, my supposed $41,000.00 truck is worth about $20,000.00 tops with less than 1 year of depreciation. After all, you can now get the same truck for even less than I paid last year. It moves the iron and keeps the line moving, but it doesn’t do much for resale or brand image.
      I bought it for a work truck and by the time I’m finished with it resale doesn’t mean much due to mileage driven, but what about the average consumer who expects his big investment to be worth something after 3 years? Unless they want another domestic they are going to have to dig deep at trade in time, and if they do they probably won’t be back for another domestic. The shame of it is, it’s a good truck. If it was realistically priced to begin with they wouldn’t need incentives to sell them. Gradually lower prices, gradually reduce incentives and then work on selling value instead of price.

    • 0 avatar
      dwford

      If you are buying a brand new vehicle and expecting it to be worth a substantial portion of the original selling price after 3 years, you will always be disappointed. 

      Vehicles aren’t “investments.” The best you can do is to minimize the depreciation loss.

  • avatar
    Wheeljack

    One of the problems in this business is that people who were good as jamming wholesale down the dealer’s throats are promoted up the ladder into senior level positions in “Sales & Marketing”. Let’s get one thing straight, just because you were good at wholesaling units to dealers doesn’t mean you know beans about marketing, yet they treat the two topics as one and the same here in this town. Because of this, it’s no wonder we end up with inconsistent and ineffective marketing initiatives.    

  • avatar
    ajla

    That quote from Akerson sounds like something out of an old Saturday Night Live Ross Perot parody sketch.

    • 0 avatar
      FromaBuick6

      Here’s a real life Perot quote:

      “I come from an environment where, if you see a snake, you kill it. At GM, if you see a snake, the first thing you do is go hire a consultant on snakes. Then you get a committee on snakes, and then you discuss it for a couple of years. The most likely course of action is — nothing. You figure, the snake hasn’t bitten anybody yet, so you just let him crawl around on the factory floor.”

      That’s from an absolutely priceless interview Perot did with Forbes:  http://money.cnn.com/magazines/fortune/fortune_archive/1988/02/15/70199/index.htm

      That was from 1988.  Ross drove GM crazy after they bought EDS and he got a seat on the board.  That same year, GM bought out Perot’s shares in the company for $700 million, just to make him go away.

      Ross Perot understood what a disaster GM was in the ’80s.  John DeLorean understood it in the ’70s.  The stories are pretty much the same.  Today, absolutely nothing has changed and GM still doesn’t get it.

  • avatar
    ixim

    I don’t know what Akerson and the press are talking about. Since last Labor Day, around here in suburban NY, Toyota’s incentives were much better than GM’s. They still are, though smaller than before.

  • avatar
    HoldenSSVSE

    In other news Toyota announced they are cutting North American production in half through June due to severe parts shortages.
    Just curious on why the coverage of Toyota’s problems ended here on TTAC when the picture became clearer that the damage for the earthquake is severe and long term.
    You can now go back to GM bashing.

  • avatar
    enlianykiy

    Worse, my supposed $41,000.00 truck is worth about $20,000.00 tops with less than 1 year of depreciation. After all, you can now get the same truck for even less than I paid last year. It moves the iron and keeps the line moving, but it doesn’t do much for resale or brand image.

    • 0 avatar
      doctor olds

      @enlianykiy- Interesting comment. My perspective is quite the opposite. It seems to me that trucks hold their value a lot better than cars. I jumped on a 2008 GMC Sierra in November ’08 as they discounted it from $35K MSRP to $22K in the scramble to generate cash flow to avoid collapse. I see the same year trucks with 50,000+ miles being offered on used lots for $20K-$22K. Sure it is a lot less than the MSRP, but no one should have paid MSRP to start with either. 

  • avatar
    enlianykiy

    same goes for employees, retirees, dealers, salespeople, and suppliers. but like good old Marek Fuchs says “at GM, they just don’t get it”.

  • avatar
    doctor olds

    I keep telling you, wait until the quarterly profits keep rolling in through out the year.

    There really is a different cost structure and, if you recall from Ed Niedermeyer’s recent post, GM’s incentives do not look nearly so high when compared to average transaction prices. They just command higher prices to start with. That is a great position to be in from a business perspective.

    Akerson credits 100,000 additional GM cars sold in the first quarter to the incentives .

    That is 50% more volume than VW-Audi group’s entire sales and about the same as Kia, the fifth largest import brand.

    I have to agree with concerns about customer impressions, but the relatively small bump in incentives certainly paid off with profitable business.


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