GM Expands Discount Offer
General Motors Corp. on Thursday added 2006 models to its offer of employee discounts for all customers and extended the program through September, a sign that the company has been unable to wean itself from the price cuts.
Some large 2006 sport utility vehicles and pickup trucks, including GM’s Cadillac Escalade and Chevrolet Silverado, will be added to the offer for the first time, GM spokeswoman Deborah Silverman said. The promotion, which already applies to most 2005 models, was to end Sept. 6.
GM’s inability to sell cars at full price left its U.S. auto operations with $3 billion in first-half losses. Moody’s Investors Service reduced the company’s credit rating to high-risk, high-yield junk Wednesday, citing the need for GM to reduce its dependence on large incentives.
“Adding 2006 SUVs is like the kiss of death,” said Rebecca Lindland, an analyst for Lexington, Mass.-based Global Insight Inc. “Where do they stop it?”
GM unveiled the discounts in June in response to market share losses to Asian rivals such as Toyota Motor Corp. and to clear out bloated inventories of cars and trucks at dealers. The promotion helped boost Detroit-based GM’s U.S. sales by 47% in June and 15% in July.
Ford Motor Co. and DaimlerChrysler’s Chrysler unit followed by a month, helping slow Asian automakers’ gains in U.S. market share. June and July were the first consecutive months that Asian companies failed to increase share since 2002.
The new discounts may pressure Ford and Chrysler to continue their own promotions and add more 2006 models or risk losing market share to GM, which had 29% of the U.S. auto market in July. The employee discounts on 2005 models are losing effectiveness in August, said Jeremy Anwyl, president of automotive data service Edmunds.com.
“August has been a very slow month for domestic automakers,” Anwyl said.
U.S. automakers’ combined market share is expected to drop to 55.5% in August from 61% in July. GM’s August market share will shrink to 23.1% from 27.9%, according to Edmunds projections released Thursday. Ford and Chrysler both are expected to post smaller sales declines for the month.
Meanwhile, Edmunds said, import brands, led by Toyota, Honda Motor Co. and Nissan Motor Co., are expected to post significant gains without having copied the U.S. companies’ steep discounting.
Ford plans to review its employee pricing program when it expires Sept. 6, spokesman Jim Cain said. Ford on Aug. 1 said it would extend the promotion to some 2006 SUVs, including its Ford Escape, Ford Explorer and Super-Duty pickups.
“People need to realize it can’t and won’t last forever,” Cain said. “It’s been effective for us and it sets us up well to introduce some new models. At this point, our plan only goes through Labor Day.”
Ford, which also was lowered to junk by Moody’s on Wednesday, cut about 1,000 U.S. salaried jobs in the second quarter and is in the midst of paring an additional 5%, or about 1,700 jobs, from its North American automotive workforce.
Ford Chief Executive Bill Ford said in Detroit this week that a fourth-quarter restructuring would go beyond cost-cutting and include “new initiatives” that he didn’t specify.
Chrysler plans to continue the employee pricing on 2005 models “indefinitely” and doesn’t currently offer the rebates on 2006 models, spokesman Kevin McCormick said. Incoming Chief Executive Tom LaSorda said Aug. 17 that the automaker was considering continuing the program past Sept. 6.
The discounts won’t apply to any of the company’s 2006 Hummer SUVs, Silverman said, or to 2005 versions of Chevrolet Corvette sports cars, Pontiac GTO coupes, medium-duty pickups and Hummer H1 models.
GM shares fell 18 cents to $34.09.
