Well, we’ve already been warned that GM’s 4Q cash burn and financial results will be worse than the just-released 3Q results; now we have another reason why. Even though GM has been averaging just over $4,000 per vehicle in incentives, a traditional Red-Toe-Tag sale has been planned for year’s end, reports Automotive News [sub]. As in years past, the answer lies in shoddy inventory management. GM’s Susan Docherty explains:

All of our efforts will be to sell down our remaining 2009 inventory. We’ll have a little bit of carryover of that into the first quarter of 2010, but the objective is to keep our inventory somewhere between 425,000 to 450,000 units. I’d rather have very slow, incremental movement up [in market share] than the peaks and valleys we saw all over 2008 and of course in the first six months of the 2009 calendar year

Wait, there were peaks to go along with all the valleys in 2009? More to the point, how does Docherty’s desire for organic growth square with the decision to spike sales at year’s end with as-yet non-specific financing and cash incentives? The real irony is that GM is having an easier than expected time moving its remaining 10,000 Pontiacs and 8,000 Saturns; The Red Tag event is for Chevrolet, Buick-GMC gets the “Holiday Event” and Cadillac will hold a “Seasons Best” sale. Non-stop incentives on “core brands,” goes against much of the “sell the product, not the deal” rhetoric coming out of GM post-bankruptcy. And unless holiday sales blow up, the profit-sapping incentives will help justify GM’s 4Q loss warnings. The turnaround still has yet to show itself.

US sales of the not very Smart car have fallen off a cliff. The Financial Times reports that “Smart sold only 661 of its fortwo model in the US last month, more than two-thirds below October 2008 and the lowest for any month since the car made its debut in the US early last year.” Other analysts are blaming low fuel costs and the foolishness of US consumers who just don’t get the appeal of microcars. Not me, I blame the fact that the Smart car is an all around underwhelming vehicle which gives up too much capability in return for mediocre fuel economy. Note that the Smart brand is a failure in Europe as well. “Daimler’s decision to export Smart to the US was a critical part of its rescue plan for the brand. For all its pizzazz, the little car has been a financial millstone. Daimler came close to shutting down the brand in 2006, but opted instead for a €1bn ($1.5bn) restructuring aimed at making the business profitable by the end of 2007.” How anyone (let alone Roger Penske) thought a failed European microcar would be saved by exports to the US is beyond me. Smart’s new “Value Days” 1.9% financing promotion isn’t going to get the job done. Not even a Toyota-esque Saved By Zero campaign would do the trick.

I’m not going to tell you incentives are going away. They’re part of the game, but they can be better managed than they have been in the past

GM Sales maven Susan Docherty in the WSJ.

It’s 2009, and Chrysler Group is still hugely dependent on Ram sales to keep dealer volume flowing. Not that there’s anything wrong with pickups per se, but dependence on a shrinking market (down 34 percent year-to-date, compared to 27 percent reduction for all light-duty vehicles) is never a good thing. Cutting into profits to keep your share of said declining market is even less of a good thing. And yet Chrysler is planning on doing just that, cutting starting prices on 2500 and 3500 Heavy Duty Rams by $1,970. According to Automotive News [sub] Ram 2500 regular cab 4×2 with a 5.7-liter Hemi V-8 will start at $28,165, including shipping for the 2010 model year, despite offering more equipment than the outgoing model. Why? In a word, desperation. “There’s not a lot of strength in Chrysler’s portfolio right now, so they’re trying to give it its own identity,” says Edmunds Editor Karl Brauer. Except that “won’t sell unless they’re discounted to the hilt” was already part of the Chrysler portfolio’s identity. The only difference with the Ram is that it might just sell. As Cash-for-Clunker-era sales results prove, even huge rebates (on top of record manufacturer incentives) don’t do much to move Chrysler’s moribund car lineup. So why not try massive discounts on massive Rams?  How much worse could (will) it get?

That’s right. Buy a $110,000 Tesla Roadster, and according to the Denver Post, the state of Colorado will give you $42,000 in tax breaks. That’s 85 percent of the premium over a Lotus Elise. Colorado’s alt-fuel and zero-emissions tax credit system gives between 50 percent and 85 percent of the premium over a comparable gas-burning car, but as a zero-emissions vehicle only the Tesla can claim the full 85 percent discount. “Most of them are (Toyota) Priuses and hybrid vehicles,” say CO revenue department spokesfolks. Still, the colossal incentive on the two-seat Roadster was enough for the state legislature to limit discounts to no more than $6,000. But that limit doesn’t go into effect until January. Between now and then though, there’s practically no reason to buy an Elise in Colorado… unless you want to be able to fill up at a gas station. [Hat Tip: Freedmike]

Through September, as calculated by Edmunds [via Automotive News [sub]]

A TTAC source asks us to perform the following mental exercise:

“Just imagine that you’re a car salesman and you come into work this morning. Your boss says we have a bunch of new incentive programs you need to learn. And here they are . . .”

(Read More…)

The big blockbuster, peanut-butter-approach programs like zero-percent financing and employee discounts for everyone have all been done before

GM spokesman John McDonald in a Bloomberg story on the industry-wide drop in incentives and rising transaction prices. What about Truck Month? Surely we can all agree that has been “done before.”  And though the Detroit automakers have eased incentives by about 25 percent from their March peak, at $3,278 this August, they’re still higher than the industry-average of $2,474. And the brief respite from incentive-redlining could be ending soon. With inventories depleted by Cash For Clunkers, GM is adding shifts in hopes of increasing production by 20 percent in the fourth quarter. Throwing more cars into a clunker-hangover sales environment could be just the thing to bring incentives and “peanut-butter-approach programs” (can anyone explain that pejorative?) back in a big way. But don’t call it a comeback: they never really left.

This is good — the money on the trucks. The money on the 2010 models is a nonevent because there aren’t any of them in stock . . . The incentives are good advertising to get people in the door, then we can sell them whatever we have in stock.

Tommy Brasher, owner of Brasher Motor Co. of Weimar, Texas, on GM’s decision to hold a “Truck Month” sale after all. Maybe we didn’t get the memo, but GM’s Bob Lutz said last week that GM would forgo the celebration of lost profits for fear it would hamstring the “May The Best Car Win” campaign. After all, the whole point of “May The Best Car Win” is to convince consumers that GM products are worth shopping even when they don’t have cash on the hood. But with trucks cramming the lots and in-demand models nowhere to be found, GM went ahead and sacrificed perception for what spokesfolks call a “competitive response” to Ford’s Truck Month. Old habits die hard.

Economics professors Burton Abrams and George Parsons sum up the Cash for Clunkers tragedy wonderfully in their essay Is CARS a Clunker? [PDF available here]. “Concentrated benefits create vocal advocates, while diffused costs produce silent, apathetic opponents,” they conclude after showing that the costs of crushing clunkers outweighed the benefits by about $2,000 per vehicle.  But reality is even worse. As economists, Abrams and Parsons break everything into dollars and cents. That’s their job. But one look at the CARS.gov list [PDF] of vehicles “traded in” shows that, for car aficionados anyway, the true cost of Cash for Clunkers is almost impossible to boil down to mere money. Did you know some fool “traded in” an Aston DB7 Volante? An M3? A TVR? A grip of Ur-Quattros? Three Laforzas? I didn’t even know what a Laforza is. Now I don’t want to get all Hemmings on you, but this stuff is more than just heritage: these vehicles are wonderfully bad decisions waiting to happen. Literally thousands of young men are currently trolling their local Craigslist for out-of-reach vehicles at prices that would make anyone who knew better run away screaming. Thanks to Cash for Clunkers they’ll never understand the agony and the ecstasy of trying to keep an Aston running on elbow grease, generic parts and a Nietzschian will to awesome. And that’s the real tragedy.