General Motors Death Watch 23: The Price of Everything
And so General Motors turns to 'value pricing' to maintain the momentum created by its now defunct Employee Discount For Everyone (EDFE) program. OK, so what the Hell is value pricing? 'Value' is a subjective term. Stick it front of the word 'pricing' and the phrase simply indicates that someone somewhere thinks that a particular price is fair. Whether or not customers agree with The General's assessment will be revealed in a month or so. Meanwhile, let's try to find the truth behind this slippery concept…
This is what we know for sure: the official sticker price for GM's '06 models will be lower than the official sticker price for its '05 models. Whether or not the new sticker price will be significantly less than the EDFE price, or the pre-EDFA discounted price, is not yet clear. (To refresh your memory: the EDFE price represented a large discount from the official sticker price, but a relatively small discount from the actual, discounted price available before the EDFE program began. In a few rare cases, the EDFE price was actually higher than the discounted price.) More importantly, The General swears it will no longer slash prices to chase turnover and market share. The fire sales are finished.
It's a gutsy move. GM is betting the farm that it can create an enormous shift in consumer expectations. The General wants potential purchasers to ditch the idea that GM is the Wal Mart of automakers, where everything is always on sale and price is, let's face it, the main reason you came into the store in the first place. From now on, they want customers to see GM as an automaker who sells real value: excellent cars at an excellent price.
It won't work. First of all, GM does not make excellent cars. While virtually all of its 80 models [now] qualify as worthy, hardly any of them excel in relation to their rivals. If GM tries to sell a Chevrolet Aveo based on anything other than its low price, they're heading for trouble. Unfortunately, the same limitation also applies to everything from the Chevrolet Impala to the Cadillac CTS. Aside from the Pontiac Solstice, Chevrolet Corvette and Hummer H3, GM's products lack the spizzarkle, the killer app, the USP they need to stand apart from their competitors and say, 'Don't worry too much about price 'cause we're the best.' When customers see your products as roughly equivalent to the competitions', price-based comparison shopping is both inevitable and unavoidable.
Second, GM is ignoring the supply side of the equation. The General is locked into union contracts which make it virtually impossible to stop making cars; they have to pay the workers full freight regardless of plant closures. There's no escaping the implications: as soon as supply exceeds demand, the market value of those cars drops. Lest we forget, GM launched the EDFE program to clear enormous inventories of unsold cars. If GM swears off discounts and cars pile up they'll have to… what? Let them rust into the ground on abandoned airfields? Crush them? Anyone who bets against some sort of clearance sale isn't playing with a full deck.
Lastly, The General is lying. According to spokesman Jeff Kuhlman, GM will continue to run regional incentive programs, which might include rebates, dealer cash or cut-rate financing. Huh? Since when is a regional incentive not an incentive? That's a distinction without a difference. What's more, GM is happy to point out that the 's' in MSRP stands for 'suggested'. If a GM dealer wants to sell a vehicle for less than the 'value-priced' sticker, well, that's just the way it is.
GM's new 'value pricing' strategy does not, in fact, signal an end to The General's cut-price mentality. It's a cynical concept designed to hide the fact that GM's limbo dance will continue apace. If GM REALLY wanted out of the bargain basement, they'd bully their dealers into introducing no-haggle pricing; that's the element of the EDFE program that made it work.
In any case, there's no getting around the fact that any product is worth exactly what someone will pay for it. No more, no less. As long as the cost of its products exceeds their market value, The General faces the prospect of being 'value priced' out of business.
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