GM Extends Employee Pricing for Everyone Promotion
By Chris Haak
Yesterday (September 2), GM’s “very limited time” employee pricing for everyone promotion was scheduled to end. In spite of the company’s claims that the promotion this time would be only for a very limited period and that it was a brief opportunity, etc., today GM announced that because of the program’s success at the end of August, the promotion would be extended until the end of September.
During the first phase of this go-round of employee pricing, GM limited it to all 2008 models and a handful of 2009 models. For the remainder of September, the promotion will be extended to a majority of 2009 models (approximately 80% of the portfolio).
It’s obviously a very tough market right now for nearly everyone in the US, and particularly GM, Ford, and Chrysler. I’d be curious to see how GM defines success in this program; of course, sales will see a bump because the pricing is so good, and people who thought about buying a new car in the next few months will pull ahead their purchases to take advantage of the sale. But eventually, that audience will have bought their new cars, and then who will be left to buy them? Also, there are the proverbial twin elephants in the room of depressed residual value erosion when new cars are discounted so heavily, and the de-valuation of the brands with consumers again seeing GM as a purveyor of “deals” instead of, you know, “good vehicles.”
That being said, it will be interesting to see how the August sales looked for GM and their competitors (results coming later today). On one hand, sales in the first half of August were probably so abysmal that they were what drove GM to trot out the employee pricing promotion again; on the other hand, second half sales volume likely picked up. Still, according to the Wall Street Journal, analysts expect GM sales to be down 20-30% in August. If those analysts are correct, GM may be doomed; when employee pricing was first introduced in mid-2005, sales spiked somewhere between 30-40%, so if they’re sinking by double digits in spite of the discounts, it means that there’s not much GM can do to encourage more people to buy their products.
Finally, there’s a huge per-unit revenue cost to this promotion. Is GM making money on the vehicles it’s selling at steep discounts? And even if they are right now, will the results at the end of the year with a sales-killing hangover due to pulled ahead sales kill the financial results then?
Both the sales release later today and the Q3 results when they’re released early in the fourth quarter will give some very clear signs if GM’s best days are behind it, or if it does have a future as a viable ongoing concern.
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