GM's Many Friends

June 3, 2005
In the 25 years I've been covering the auto industry, I've often been asked by friends, and occasionally even by strangers, if I could help them got an A- or X-plan discount. For the non-initiated, those terms designate special programs normally available to what an automaker like General Motors might call "friends and family." These are sharp discounts normally offered to employees and relatives on top of any incentives currently on the market.

So imagine the surprise when GM announced its latest incentive program, essentially offering the same insider discounts to anyone ready to plunk down hard cash. It's not surprising, considering the carmaker's perilous plunge in the market in recent months. This was supposed to be a spectacular year for the industry giant, but with only a few exceptions, 2005 has become a year of dismal realities, with new products like the Buick LaCrosse, piling up on dealer lots, and GM plants regularly being idled. Don't be surprised to see the numbers soar in June.

But then what? Among the six major mainstream brands, including Detroit's Big Three, plus Toyota, Nissan and Honda, GM already has the lowest transaction prices -- the actual dollars a customer shells out after all the discounting. It's running deep in the red, and while it helps to keep plants open, you can't turn red ink to black by selling every car at a loss.

That's not the worst, though. The real issue is one of image. Walk into a GM showroom these days, and you smell the acrid smoke of a fire sale. "It didn't make me feel good about the brand," said a friend of mine -- an industry supplier who'd prefer not to insult his biggest customer. The deep discounting also cuts into residuals, or resale values, and leaves GM with less money to invest in its products. The short-term results of the new campaign may help keep factories running. But if consumers begin to believe that GM goods just aren't worth as much as as a Toyota, Chrysler or Honda, the long-term outlook is desperately bleak.

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