By on February 13, 2012

GM’s turn-around hinges on a market share above 19 percent, board member Stephen Girsky said at an industry meeting in October 2009. “The public plan is 19 percent and change. That is what everything is being based on,” Girsky said during a panel discussion at a conference at Columbia Business School. Reuters was taking notes.

In the 3rd quarter of 2009, GM had a market share of 19.5 percent. The share climbed to 21.8 percent in January 2011, and eroded ever since.

In January 2012, GM’s market share stood at 18.4 percent, says Edmunds. In the same month, GM CEO Dan Akerson had a change of heart and said that this had been the plan all along:

“I like profitability more than I do market share. We’re a mass producer and scale matters to us, but obviously we’ll look for margin and profitability going into 2012.”

This is what Akerson dictated into the notepad of Reuters at the Detroit auto show. Reuters continued:

“Prior to its 2009 bankruptcy, GM was criticized for loading incentives onto its cars to drive sales and keep its factories operating at high capacity, regardless of what that did to profits. Since its restructuring, GM executives have stressed protecting the company’s ‘fortress balance sheet.’”

Data collected by Edmunds tell a different story. GM is by far the most generous American maker when it comes to incentives. In January 2012, GM’s Total Cost of Incentives (as calculated by Edmunds) was $3,171 per unit. Ford spent $2,788, Chrysler $2,447. The industry average stood at $2,141. In January 2012, only BMW put ($28) more on the hood of its much pricier cars than GM. GM out-spent Mercedes Benz which had been in a bitter fight with BMW for the luxury sales crown last year, and spent $3,107 in January.

At the same Detroit auto show, GM’s North America chief Mark Reuss promised that GM’s U.S. consumer incentives will remain at or near the industry average. Imagine what would happen if Reuss keeps his promise and drops incentives by $ 1,000.

Analysts polled by Bloomberg predict that U.S. automakers led by GM will lose more market share this year.

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32 Comments on “Still Generous With Incentives, GM Sheds Market Share Nonetheless...”


  • avatar
    KixStart

    1) In GM’s plans, the 19% share may have been associated with a lower SAAR. I think we’re looking at a SAAR that’s higher than they had originally forecast. So, the simple math says maybe they’re still OK.

    2) And incentives are tricky. I’ve never fully understood them but the general idea (perhaps an idea whose time has come and gone) was to protect the basic price. Incentives are not, per se, bad.

    Another thought… are incentives really the key component of financing deals that should not fly? Does the incentive make a loan look good on paper? Does the incentive help con the lender into thinking that the borrower is coming in with 10% down when, in fact, he has zero cash in?

    3) However, market share always suggests momentum to me and falling market share is loss of momentum and, again to me, this implies shrinking profit margins.

    A lot comes down to what cars GM can produce profitably. If GM’s offerings are profitable across the board and GM’s operations are sufficiently flexible, then maybe this isn’t a big deal. However, if GM is selling the Cruze for cost and incenting it to less than cost, then the combination of falling market share and zero margins in critical battlegrounds forecasts future trouble.

    • 0 avatar

      Edmunds:

      “Overall, fleet sales accounted for 24% of total January sales. It hasn’t been this high since March 2010. In fact, it is this bump in fleet sales that accounts for the forecast errors. If fleet sales were “normal” (around 20%), January SAAR would have come in at 13.4m.”

      • 0 avatar
        KixStart

        Bertel,

        The article harks back to October, 2009. I think that SAAR projections, at that time, were 12 million, maybe less.

        19% of 12 million = 2.28 million.
        18% of 13 million = 2.34 million.

        18% of 13 million is actually more unit sales. Losing share isn’t good but I don’t know that GM has a revenue emergency on account of it.

    • 0 avatar
      Pch101

      “And incentives are tricky. I’ve never fully understood them but the general idea (perhaps an idea whose time has come and gone) was to protect the basic price.”

      In the case of the domestics, high incentives are usually an indication of production that exceeds demand, and the need to provide discounts in order to dump the excess inventory.

      The problem for the automakers is that they are effectively on the hook for the vehicles that the dealers are trying to sell. In theory, the dealer buys the car from the manufacturer and owns it once it hits the lot, but in practice, the manufacturer sold most of that inventory by providing loans from its captive financing arm, and those loans need to be repaid. The incentives allow them to turn those unpaid dealer loans into cash.

      If you compare January 2012 to January 2011 share, Chrysler is the big winner. I will bet that much of that is due to fleet, and a large chunk of the retail component is attributable to Jeep. If Ford and GM fleet have been relatively flat as a percentage of sales, and if Hyundai/Kia has been reducing fleet, you can guess where that increase in fleet share has been going.

      • 0 avatar
        tresmonos

        It really depends on the size of the dealer. Some dealers own the inventory outright. In that case, you would be right about them being on the hook for revenue. Otherwise they would make money off of inventory via interest.

        Dealers usually own the vehicle when it is ‘gate released’ at the plant.

  • avatar
    Omnifan

    Just got a card in the mail from GM last week. My GM card points PLUS owner loyalty PLUS per model incentive PLUS top off the points upward. $3K before considering a specific model. If I buy a Silverado, I’d get $1K extra off. $500 less for a Cruze.

  • avatar
    NormSV650

    Chasing market share will cause GM to find itself in the “Toyota Toliet” sliding backwards in lost quality. It does provide fodder from the press as it’s just a number.

  • avatar

    GM’s treading water waiting for fresh product. If they stay reasonably profitable through 2012 — and they will, absent some huge economic meltdown — I won’t be worried. 2013-2014 is when we’ll really see where they’re at in terms of competitiveness.

    • 0 avatar
      KixStart

      Wasn’t that the message just before the ’08 NuBu hit the streets?

      It’s like deja vu all over again.

      In fact, in the short term, I think the NuNuBu is going to have problems… The MSRP on the base, which includes the nearly useless eAssist, is $25K, against a field that usually starts at $22K and, in some cases, less.

      What other fresh product is coming?

      • 0 avatar
        mike978

        Kix, the base price for the Malibu with the standard 2.5 engine will be around the $22K figure. The eAssist came out first due to engine availability issues.

        We will see from their publicly released revenue and profit figures how they are doing – that is the bottom line rather than pontificating on here. An advantage of the company going back on the stock market.

        As for other fresh product – Cadillac ATS and XTS, refreshed Lambda’s and for Chevy a new Impala and range of trucks (with Tahoe) all in the next 12-18 months from what I have read. But you are right there is always something over the horizon.

      • 0 avatar
        KixStart

        mike978,

        I understand that. It leaves Chevy dealers in the unenviable position of attempting to sell a new 2013 Malibu for $25K, or a perhaps more reasonably priced old 2012 Malibu against a sea of cars that are current and priced lower than the 2013. I don’t see that going well. Expect a lot of discounting or a bolus of 2012 Malibus to rental fleets.

        The Cadillac product may have some legs but I do not recall that refreshed trucks make a much difference in sales. If memory serves, their inventory builds pretty quickly.

  • avatar
    wsn

    The demise of Honda has been greatly exaggerated, again.

  • avatar
    APaGttH

    So let me be the first of several people to point out. GM’s average transactional price is the highest of the non-luxury (e.g. BMW, Porsche, Mercedes) manufacturers. And by a pretty wide margin. Higher transactional prices means higher incentives don’t have the same impact.

    The reality is GM is “profitable” by account practices accepted by the US government (of course those are the same accounting practices that drove our economy off of a cliff, but that’s a different story).

    Surprised to see the 3% marketshare drop in a year. I do know that GM is dialing back fleet sales, and is now the least dependent (but still overly dependent) of the big three. Ford has wrestled away the fleet crown from Chrysler and moved into first place, at just under 33% fleet in 2011. The Focus led the charge at 45% fleet. GM was a hair over 24%, behind Chrysler, but it is worth noting has two dedicated fleet sale models (the Caprice and Aptiva) and for all statistical purposes, the Impala is the Panther of 2011, with most of the sales directed at police, taxi, and rental services.

    GM still has massive problems – so consider this faint praise. But the biggest point is, higher transactional prices is going to result in higher incentives with smaller impact on the bottom line. I know others have done the math, and on a percentage of average transaction, GM is in the middle of the industry, somewhere right around Toyota. (I let someone who has the access to fresh numbers crunch the math and post, I’m sure somoene will – they always do)

    • 0 avatar
      aristurtle

      “GM’s average transactional price is the highest of the non-luxury manufacturers.”

      This smells like one of those statistics that’s unhelpful for non-marketing purposes, given that a GM-wide average includes at least one and a half luxury brands (depending on how you place Buick and GMC).

      Anyway, the problem with incentives in general, aside from what everyone else has already pointed out, is that it’s a short-sighted way to push the product downmarket. Demanding that engineering cut $3000 out of the production costs and then turning around and putting $3100 on the hood is not going to produce a better car than figuring out your market correctly in the first place.

      • 0 avatar
        APaGttH

        But once you break the seal, buyers expect. Toyota is having one Hell of a time getting off the incentive treadmill now after going there in the first place, and even in an era of tight inventory due to floods, earthquakes, radiation, tidal waves, swarms of locusts, boils, plagues, a rain of frogs, and the coolant inside of Toyota products turning into blood, they stayed on the treadmill with near give away subsidized leases on bread and butter products along with cash back.

        Honda has plenty to be punished for as a maker. Their product design and new product releases have been less than stellar to be very kind for close to a decade, and getting steadily worse. However, they’ve stayed off the incentive train and avoided fleet sales. They’ve been punished accordingly.

        You’ve taken the position that all incentives are bad – absolutely I agree. But once you’re there, it’s near impossible to change consumer behavior.

        Back to my original point. Lets say your average transaction price is $31,500 (which is close to what GM is). And your average incentive is $3,000. ACK! $3,000 per vehicle is horrible (fun with numbers) 9.5% of transaction is meaningless without comparison.

        Now lets say I’m Toyota, and my average transaction price is $25,500 and my average incentive is $2,150. Well Hell ya, that’s way better than GM, by $850. Ahhh, but it is still 8.5% of the transaction price. Yes, 8.5% is better than 9.5% but the gap doesn’t look so bad. The last time these numbers were crunched here, GM was at 9.8% and Toyota was at 9.6%. Not picking on Toyota, just using them as the benchmark for success.

        Either way is fun with numbers, glass half-full versus half-empty. etc. etc.

        Again, I know someone will post here with the updated figures and show incentives in terms of percentage of transaction, which is a much better way to express things.

      • 0 avatar
        aristurtle

        The thing is, though, what really matters is 1) whether or not you’re still making money, and 2) how much money you’re making. And that’s not obvious from the quick numbers. $3000 incentive on $31500 is no problem if the car cost $20000 to manufacture in the first place, but is rather painful if it cost $29000.

        On the other hand, like you said, GM may well be at the point where incentives and “the deal” make up a prearranged part of its marketing language rather than being a quick fix to high inventory problems, sort of like when your local grocery store doubles the price on something the day before a “50% off” sale. Does GM start figuring the price point of its cars with the incentive already built in, in the engineering design phase, and work from there? If not, maybe they should.

      • 0 avatar
        Pch101

        “Toyota is having one Hell of a time getting off the incentive treadmill now after going there in the first place”

        Er, Toyota has incentives per unit that are below the industry average, and retail discounts to MSRP that are among the lowest in the industry. Chevy’s incentives per unit are well above the industry average, and more than double than that of either Toyota or Lexus.

        http://www.edmunds.com/industry-center/data/true-cost-of-incentives-by-manufacturer.html

        http://www.edmunds.com/industry-center/data/discount-percentage-by-manufacturer.html

        In contrast, all of the domestics have lower inventory turn than the industry average. Toyota doesn’t show up on the before-average list of performers: http://www.edmunds.com/industry-center/data/days-to-turn-by-manufacturer.html

        You really need to work on your spin doctoring. I know that you are a GM fan, but turning facts into confetti doesn’t really help your case.

      • 0 avatar

        @APaGttH

        This is all well and good if you would use the real numbers. Links had been provided.

        I’ll do it for you:

        GM average transaction price Jan 2012 as per TrueCar: $32,971. Total Cost of Incentive as per Edmunds: $3,171. Percentage: 9.6%

        Toyota average transaction price Jan 2012 as per TrueCar: $27,258. Total Cost of Incentive as per Edmunds: $1,426. Percentage: 5.2%

        Industry average transaction price Jan 2012 as per TrueCar: $30,512. Total Cost of Incentive as per Edmunds: $2,141. Percentage: 7.0%

      • 0 avatar
        KixStart

        Some context on “average transaction price.”

        GM’s lux and quasi-lux brands accounted for 52K units in January. Chevy was 123K. GM’s lux business is about 30% of the total.

        Toyota’s lux brand accounted for about 10% of units.

        The truck business depends on how hard you squint at the numbers but it looks like GM still skews very much more towards trucks, which are often high-ticket items, than Toyota.

        When you look at the product mixes, GM’s transaction price *should* be higher. In fact, unless it’s a lot higher, it’s probably does not signifiy comfortable margins and an ability to absorb higher-than-average incentives.

  • avatar
    JCraig

    GM sells products. Those products happen to be cars. The whole company seems to be run as an accounting exercise. Ford and Chrysler at least have strong leadership focused on making their cars better.

    • 0 avatar
      APaGttH

      Well that certainly explains balky dual-clutch automatics and MyTouch. Thanks for clearing that up.

      • 0 avatar
        JCraig

        My point is a focus on cars, it’s an ongoing process. We’re just seeing the first generation of the ‘new’ Ford, and only just seeing the new focus at Chrysler. GM seems to lack the leadership that most of the other car companies have. Marchionne, Mulally, Toyoda, Ghosn… Is it safe to say Honda’s glory years were under Soichiro Honda? Hyundai’s CEO was personally involved with the development of every model until he stepped down. Just look at the tail lights or steering wheels on most GM vehicles and that tells you all you need to know about their focus. Cost.

    • 0 avatar
      alf42

      Well said. Continous improvement does not seem to be their philosophy and the accountants seem to be the ones in charge, in search of short-term financial goals.

      Now would seem to be the perfect time to change course from their old ways, while they’re on government support. I don’t see that happening though, and if it is happening it hasn’t been communicated to their customers.

  • avatar
    Dynamic88

    GMs cars are an awful lot better than they were a few years ago. So someone, somewhere in the RenCen must be focusing on that.

    Market share is a silly thing to focus on. It doesn’t really matter if it’s 18.4 or 19.5.

  • avatar
    ravenchris

    GM products are not worth their price. Incentives and other discounts capture the more aggressive customers who still pay too much for what they get. As more people embrace this reality GM market share will be reduced further. Taxpayers and blue-collar employees will play their usual role as victims of short-sighted management and career oriented law makers. Protect yourself and the future by not reelecting incumbents. Also, do not underestimate the message you send to management via your purchases.

  • avatar
    Zackman

    You just wait – when Chevy puts three tail lights back on the Impala as god intended, Chevy’s market share alone will go back to 30% of the market like in the 60′s.

    (waking up now)

  • avatar

    they have no clue what to do, none, zero. they are full of themselves and excuses. I know these people first hand and they are useless. I could get them 5 points of share spending less money but they are far too egotistical to listen, even to someone who has retailed in excess of 25,000 vehicles. the marketing at GM is beyond pitiful, it sucks. their market share will decline to 15 percent by next year and it couldn’t possibly happen to a more deserving set of nitwits. that includes you Reuss. the only thing that saved their worthless fannies last year was the tsunami and flood. stay as far away from GM stock as you can…they are deceitful at best.

  • avatar
    Educator(of teachers)Dan

    Those incentive “averages” can be misleading. I sometimes go to “true car” just to check how MSRP differs from real world transaction prices and incentives. You want an Impala? You’re gonna get some cash on the hood. You want a Cruze or a Verano? Fat chance…

  • avatar
    ronin

    Incentives are neither good nor bad. They are simply a market adjustment to get to the true price of a transaction.

    The MSRP for GM is a ‘wish price.’ The market doesn’t care. The market pays what it pays. If it takes MSRP-discount-incentives to get 18% market share, that’s the market price for that ranking. Want a higher market share? Drop the price more.

    Consumers are saying the MSRP is too expensive for the product. Set the MSRP more realistically, and you don’t need incentives to get to the same strike price.

    Since GM is saving costs by dropping spare tires all over the place, maybe it can simply drop one more wheel while they’re at it.


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