GM sets off its own fireworks

July 1, 2005

Every year, the gateway cities of Detroit and Windsor stage a jaw-dropping fireworks display designed to celebrate U.S. and Canadian independence days. General Motors' downtown Detroit headquarters normally offers the best views of the riverfront extravaganza. But this year, GM is setting off some fireworks of its own.

We've known for weeks that the giant automaker had a firecracker on its hands in the form of the "You pay what we pay" incentive program, where customers got employee-level discounts on every product but the Corvette. But it seems even the most optimistic observers have underestimated the success of the program. We were hearing forecasts that June sales would run anywhere from 25 to 30 percent better than year-ago levels, but according to a breaking news report on the Associated Press newswire, the final numbers top 41 percent. Overall, GM had its best month since 1986.

The rest of the industry had a rather mediocre month, Ford, for example down 2.5 percent. We'd be surprised if other automakers don't copy the GM program in the weeks to come, DaimlerChrysler already signalling that possibility.

GM's June showing should let senior company executives breathe easy as they head into their annual summer shutdown. Or should they? The big question is what happens now? If and when GM lets the program lapse, analysts wonder whether the automaker's sales and share will tumble sharply. Long-time pundit Maryann Keller doesn't think the short-term success of "you pay" will reverse the steady decline in Big Three share, as reported this week in TheCarConnection's Daily Edition.

Ironically, the success of the incentive campaign could also blow up in GM's face when it comes to twisting concessions out of the United Autoworkers Union. The UAW has been reluctant to give ground on health care benefits, and may sight June's sales numbers as evidence GM can turn things around without worker givebacks.

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