The monster sale, offering 0% financing for six years on all 2004 Buick, Chevrolet, GMC and Pontiac models, will be backed with an eight-day ad blitz that could spend as much as $200 million, including support from regional and individual dealers.
The work is from a new satellite team in New York established by Interpublic Group of Cos.' McCann Erickson, Troy, Mich., GM's corporate agency. The effort was originally slated to break Sept. 25, but was moved up two days after Ford Motor Co. again followed GM with an offer of its own-underscoring the ferocity of the discounting battle.
"It's GM-Mart," said Jim Sanfilippo, exec VP of Omnicom Group's auto consultancy AMCI. The message consumers get, he said, is "everything out of GM is pretty much the same. It's on sale."
GM's Paul Ballew, executive director-global market and industry analysis, said the move isn't a reaction to September sales. "September sales have been very solid and by the end of the month, you'll be surprised how strong they are for the industry and GM," he said. Instead, the automaker wants to clear out 2004-model inventory, which Mr. Ballew said stood at 675,000 units early this month, two thirds of them trucks.
"Inventories crept up a bit high" he conceded, noting that if GM doesn't clear out the old models "it will become a much bigger issue for us" because an onslaught of 2005 models is coming.
Jesse Toprak, director-market analysis at auto site Edmunds.com, said GM's new sale "in a way is a smart move" because current interest rates are low. Still, the sale could represent lost revenue for the automaker's financing arm, GMAC, should interest rates climb during the next six years.
The financing unit generally outperforms GM's auto operations. It earned a record $860 million in the second quarter of 2004, far outstripping the automaker's $328 million earnings in North America, the world's biggest car market. GM has had success in the Asia-Pacific, particularly China (see story, P. 4); the region generated $236 million in earnings in the last period.
While GM's Cadillac, Hummer, Saab and Saturn aren't part of the sale, the "homogenous" nature of GM's national, multi-brand deal advertising concerns Mr. Sanfilippo, who said he'd prefer to see separate sale ads for each marque. Consumers get a fuzzy image of GM products when they see multibrand ads, which take away from the uniqueness of each vehicle division, he said.
GM has a long history as a leader in discounting, forcing smaller rivals to follow. Its failed brand management system in the second half of the 1990s was supposed to eliminate incentives by creating desirable vehicles for which consumers would pay full price. But despite big-budget advertising that sought to create brand images for each model, the cars and trucks weren't differentiated enough. GM's U.S. market share slipped from 31.3% in June 1996 to 28.3% in June 2001, according to Automotive News. The marketer "evolved" brand management in 2002; the vehicle divisions, rather than the models, became the brands.
In the weeks following Sept. 11 three years ago, GM dialed up incentives after industry sales tanked, and experts credited GM's patriotic "Keep America Rolling" ad campaign with jumpstarting the U.S. economy. But since then, GM has been unable to begin an exit strategy from offering sweet deals.
Mr. Ballew disputes that GM products appear distressed. "We went through a recession and we decided to go with pricing over volume," he said. All carmakers are doing deals, but in different ways, like lower sticker prices, cheaper financing or lease deals. "We tend to be more visible."
Since Sept. 11, 2001, GM's incentives have grown dramatically. In August, the automaker's average incentives were $3,981 per vehicle vs. the industry average of $2,721, according to Edmunds.com. That's lower than August 2003, when its average incentive stood at $4,025 per unit vs. $2,630 for the industry. But the averages can be deceiving. The automaker's GMC truck brand advertised $8,500 off on 2004 Envoy sport utilities at Detroit-area dealerships on TV last week.
Before 2000, the industry used incentives, essentially price cuts, temporarily to clear older models. But GM's strategy in recent years hasn't been temporary nor only for older-model clearance, said Susan Jacobs, president of auto consultancy Jacobs & Associates. GM's huge incentives are baked into its pricing and can't be reduced without a sticker-shock that will drastically cut its vehicle sales. GM, she added, has only two choices if it wants to get rid of incentives: Cut suggested retail prices to current transaction levels to sustain sales levels, or maintain current retail prices and live with far smaller unit sales.
The automaker is experiencing the "nightmare of poorly undifferentiated products," said an industry veteran who requested anonymity. "So, the critical question facing GM is what's cheaper, continuing to escalate your discounts or build more desirability and differentiation into your cars and trucks."