GM Gets It in Gear : Automobiles: Value pricing strategy helps car maker rev up its market share, which had plunged in California over a decade.
After a decade of losing ground to foreign car makers and domestic rivals in the all-important California car market, General Motors appears finally to have launched an effective counterattack.
Thanks partly to an innovative--though not universally acclaimed--sales strategy called value pricing, GM has boosted its long-sagging California sales across its seven divisions by 20% during the 1994 model year, GM said. In contrast, during the same September-through-August period, car and truck sales were up 4% for the balance of the automotive industry, GM said, citing figures compiled by J.D. Power & Associates.
The sales surge lifted GM’s share of the California market to 22.1% through June, up 1.6% since August, 1993, according to the latest statistics available from R.L. Polk & Co. That was the best showing by any auto maker and a remarkably hefty gain for a company that watched in agony as GM’s California market share slid 10% in 10 years, finally crashing at 18% in 1992.
As the 1995 model year gets under way, GM says it is in a virtual dead heat with Ford for the top spot in the California car market, and GM’s sales momentum won’t be hurt now that last week’s strike has been settled at its plant in Flint, Mich.
A number of factors contributed to GM’s California turnaround, including a 7% decline in the dollar against the Japanese yen in the past year. Exchange rate pressures have therefore pushed up the price of Japanese cars sold in the United States, making many American models a better deal. As a result, GM said Japanese auto makers lost 3.4% of the California market from September through June.
A gradually recovering California economy has also boosted GM sales. But if you ask GM officials why their company’s gains outpaced the advances of Ford and Chrysler over the past year, the answer is clear.
“Value pricing is mostly responsible,” said Ann Pattyn, who orchestrates the GM program from its regional headquarters in Thousand Oaks, the company’s nerve center for its Southern California dealer network and sales strategies.
To GM, value pricing means limiting option packages to just one or two combinations for each vehicle, and selling at discounted sticker prices that, in theory, are not negotiable. Through value pricing, GM undercuts the competition on similarly equipped cars.
For example, GM’s Pontiac Grand Am SE comes with an air bag, a stereo, air conditioning and other options for a no-dicker price of $13,995. A comparably equipped Toyota Camry DX, GM said, is listed at $20,822. Similarly, a value-priced Chevrolet Lumina is $3,000 less than a comparably equipped Ford Taurus GL. The aim of value pricing, Pattyn said, is to simplify car shopping and eliminate the haggling that makes car buying so unsavory.
But some GM dealers say the introduction of popular new designs, such as the Pontiac Firebird, and vastly improved quality ratings of GM cars have had much more to do with enhanced sales than value pricing.
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At Livingston Motor Car Co., a Buick and Pontiac dealership in Woodland Hills, sales have surged by 16% over the past model year. But sales manager Terry Billingsley said to attribute that increase to value pricing “is a real stretch.”
Indeed, many GM dealers say they have been hurt by value pricing because it boosts GM’s profits at their expense. Gil Schneider, who operates GM dealerships in Van Nuys, said sales of Oldsmobiles and Buicks are up 9% this model year, thanks largely to value pricing, but his profit per vehicle is $200 less. “If I could triple my volume, I could make it that way,” Schneider said. “But GM isn’t in a position to triple my volume.”
Nevertheless, GM is clearly smitten with the program because it helps do away with rebates, financing incentives and other costly promotions. Also, offering just a few option packages on most vehicles simplifies GM’s production process and boosts GM’s profits by forcing consumers to buy cars loaded with more features than they might otherwise choose.
In the 12 months since the program was launched in August of 1993, GM has sold 232,093 vehicles in California, 38,288 more than a year earlier. And though less than half of GM’s 1994 models were value priced, they accounted for more than 70% of sales.
GM considers the program such a huge success that the company is expanding it. In 1995, the number of value-priced models will be increased to 70 from 46, and Pattyn said she expects those vehicles to account for up to 85% of sales. And though value pricing has until now been largely a California experiment, the company is slowly moving to expand it nationwide.
Value pricing has boosted sales of certain GM models, Billingsley said, but not others. Sales at his Woodland Hills dealership of the Buick Regal have more than tripled to 15 a month since the car was value priced, for example, but sales of the Buick LeSabre are unchanged at 12 per month. Both cars are luxury sedans, but unlike the Regal, the LeSabre lacked leather seats, a keyless entry system, a power antenna and a few other features. Despite these shortcomings, the LeSabre’s sticker price was $1,500 higher than the Regal’s.
GM has squeezed dealer margins by lowering suggested prices for consumers, while often raising the price dealers pay the factory. At Livingston, for example, a well-equipped 1994 LeSabre lists for $20,195, about $300 below the 1993 sticker price before value pricing was instituted. Meanwhile, the wholesale price Livingston pays GM has gone up by about $1,350, Billingsley said.
Dealers also complained that even though value pricing is supposed to mean no price dickering with customers, competition among GM dealers is so fierce that they often feel compelled to sell below the sticker price.
Consumers rarely pay sticker prices anyway, said James Bragg, who operates the Fighting Chance consumer information service in Long Beach, so GM “reducing” the sticker price doesn’t necessarily mean consumers are paying less. Bragg also complained that GM is using value pricing to attract buyers to slow-selling models, while some of GM’s most sought-after vehicles--including the Chevrolet Camaro, the Oldsmobile Aurora and the newly designed Chevrolet Blazer--are conspicuously missing from the value-priced list.
“If value pricing is good for everyone, then why doesn’t GM put it on the cars that people really want to buy?” said Bragg, who offered another question: “How come no one else is rushing to follow GM into value-pricing land?”
The simple answer, analysts say, is they don’t need to. Chrysler, which has enjoyed brisk sales in recent years, has all but sworn it won’t engage in value pricing. And Ford employs the strategy on only a handful of its models. “We only really do that where we see a situation where the segment has shrunk, or there is a value problem,” said Keith Magee, general manager of Ford’s Lincoln-Mercury division.
That’s fine with GM, which wouldn’t mind cornering the value-pricing market.
“This (strategy) was perceived as high risk in the beginning,” Pattyn said. But now, for the first time in years, GM is talking about its once-soaring market share not as a painful memory, but as a realistic long-term goal. “It’s possible,” Pattyn said.
