General Motors will slash prices on about 80 percent of the cars, trucks and crossovers it sells in theU.S. the automaker announced Tuesday, a significant ramp-up of the Value Pricing strategy the automaker began last year. "These are broad, sweeping changes," GM marketing director Mark LaNeve revealed during a preview of the new strategy attended by TheCarConnection.com. On average, the sticker price of new GM vehicles will be cut by $1300 when the program officially debuts on January 11th. On some slower-selling models, the cuts will reach as high as $3000. The 2007 remake of the Chevrolet Tahoe, for example, will come in at $33,990, $2000 less than the old '06. And LaNeve emphasized GM will not reduce content levels in order to cut prices.
The new program will involve every model sold by the Chevrolet, Buick and GMC divisions, along with some from Pontiac and Cadillac. Prices were previously realigned at the Hummer, Saab and Saturn brands, LaNeve pointed out, so when those marques are included, GM has slashed prices on 90 percent of its U.S. volume since the beginning of the 2006 model-year.
The program reflects reality, GM officials emphasized. There is a sizable gap between the sticker price and the so-called transaction price, the figure customers actually have to come up with. Part of the difference comes in dealer discounts, but in recent years, GM has had to cover the bulk through some of the largest incentives in industry history. "Incentive programs won't go away," LaNeve acknowledged, but the automaker wants to do away with the fire sale image it has developed lately. Instead, it wants to be perceived as offering extremely good value on its product. "A lot of people will still go to the competition," he said, "but if they do, we want them to know they're paying too much." Value Pricing, he noted, has been a foundation of the Asian import strategy. It has another critical advantage: more accurate retail prices typically lead to higher residuals. That means lower subsidies on leases and higher trade-in values for owners.
"This can't hurt their image," said auto analyst Jim Hall, of AutoPacific, Inc., adding "This has potential to work," as long as GM remains consistent with the Value Pricing strategy, and doesn't start to sneak prices up again. David Cole, director of the Center for Automotive Research, agreed, but cautioned that the market will have to decide. "The $64 billion question," he suggested, is whether GM really will be able to cut incentives. If it has to continue to offer big rebates on top of lower prices, he warns, the impact on the automaker's bottom line could be devastating.-Paul Eisenstein
Geely Previews Product Line
Geely CEO |
It couldn't even find a place on the auto show floor. Yet while little Geely Automobile was relegated to a spot in a far corner of Cobo Hall and one of the last slot's on the annual auto show's news conference schedule, it attracted significant attention. For good reason, considering Geely is the first Chinese automaker to appear at the influential North American International Auto Show. One of a small group of independent Chinese brands, Geely doesn't make much of a dent, even in that country's emerging auto market. Last year, it sold a mere 140,000 vehicles, less than half what a typical Big Three plant will produce annually. But Geely's ambitions are large. It's already tested the waters with exports to Eastern Europe and the Mideast , and now the automaker is aiming its sights on the world's toughest, but most lucrative market, the U.S.
According to chairman and founder Li Shufu, the goal is to launch sales in Puerto Rico, then move to the 50 States, probably sometime in late-2007 or early 2008. It won't be easy. The car on display in Cobo Hall falls short of American emissions and safety standards and will have to be redesigned - by Geely's mostly U.S.-trained engineers. Then it will need to set up a viable dealer distribution network, stressed John Harmer, the new CEO of Geely-USA. Even the anticipated $10,000 price tag won't ensure success, Harmer acknowledged. Americans expect solid quality and reliability. There are also potential political issues, Harmer recognized. In the face of a fast-growing trade deficit, U.S. officials have been pressing the Chinese to revalue their currency. But that could bump up the projected price of a Geely. Barring such setbacks, Geely is hoping to sell as many as 25,000 cars during its first year in the U.S., and increase sales to 100,000 annually within five year.
The automaker is just one of several eying the American market. Shortly before Geely's planned debut, long-time auto entrepreneur Malcolm Bricklin hopes to launch a venture of his own, importing an array of products produced by China's Chery Motors.
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