Large GM Dealer Backs New Price Plan

[Perian]

Link: wsj.com

By LEE HAWKINS JR.
Staff Reporter of THE WALL STREET JOURNAL
January 13, 2006

General Motors Corp. won backing from the nation's largest auto retailer for the new pricing strategy that the company hopes will bolster its sliding U.S. market share, even as some other dealers have expressed concerns that they would be giving up some of their new-vehicle profit margin under the plan.

Mark LaNeve, GM's vice president of North American sales, service and marketing, will travel to 24 cities this month to stress to GM dealers that the company plans to stick to its new pricing strategy, which asks dealers to give up some of their profit margin on certain models in return for lower base vehicle prices and less volatile discounts.

"The price reductions we took are permanent. We have to stick with them," he said yesterday.

Some top retailers are getting behind the plan. Mike Jackson, chairman and chief executive of AutoNation Inc., the nation's No. 1 auto retailer by revenue, said the success of the pricing strategy "is absolutely crucial to their future."

With GM's previous programs, like its promotion offering consumers the same discounts it gives employees, Mr. Jackson said, "You're selling a discount. You're not selling the product. You're not selling a brand. You're communicating that your product is not worth what you're asking."

But Mr. Jackson said GM must "stay the course" for the new strategy to work, a process that could take months.

Some dealers reacted negatively to the cut.

"There's not a dealer in the U.S. that could honestly say that this is a good thing [for them]. This is just the way it is, and we'll have to deal with it," said Tom Shellworth, owner of Shellworth Chevrolet in Vacaville, Calif.

But the dealers' ultimate profit will vary depending on what incentives GM decides to keep offering and what the actual transaction prices are after dealers negotiate with consumers.

Thomas Zimbrick, owner of Zimbrick Inc., which sells Buick, Saturn and Saab vehicles and 11 other non-GM brands, said he sat in a telecast with a group of Buick salesmen that were "amazed, and surprised, because we had already had a price cut."

"It will affect our margins, and I believe any time you cut a margin of a dealer, be it a new car margin or a parts margin, people will be upset," he said. "However, if it helps us sell more cars and drive more cars to our showroom, I would be delighted. That's the intent."

Article continues at link.

[A CHEVYMAN]

I Hope It Works!

[asim]

This better work...GM HAS to stick to this plan...not like the Total Value Promise aftet the Employee Discount promotion.

[56 Starchief]

Originally Posted by asim

This better work...GM HAS to stick to this plan...not like the Total Value Promise aftet the Employee Discount promotion.

dont hold your breath.

really, dont.

[Aerodynamix]

I'm sure it will eventually work out for both GM and the dealers. The hard part will be waiting for the long term results. Dealers will likely loose some of the gross they make on each unit sold but if lower MSRPs bring in more customers, dealers will end up adding to their bottom line due to the higher volume of units sold. That, of course, would be the ideal win-win cenario.

[Buickman]

Most vehicles cost more now under the reduced price and reduced rebate and dealer margin, than they did last month at the higher MSRP. That's a Total Value Promise????

Meanwhile, Red Ink Rick conducts his Red Tag Sale on GMAC.

Buickman
Founder
General Watch.com

[DuSpinnst]

Originally Posted by Buickman

Most vehicles cost more now under the reduced price and reduced rebate and dealer margin, than they did last month at the higher MSRP. That's a Total Value Promise????

Meanwhile, Red Ink Rick conducts his Red Tag Sale on GMAC.

Buickman
Founder
General Watch.com

Actually if dealer margin shrinks doesn't that mean GM gets more money? Since the money that you guys used to get, now goes to GM.

[goblue1999]

Originally Posted by DuSpinnst

Actually if dealer margin shrinks doesn't that mean GM gets more money? Since the money that you guys used to get, now goes to GM.

considering the fact that GM actually has to make money to continue this game, that would be a good thing.

[Minnow101]

What's GM going to do when Ford or D/C introduce new rebate programs ? If they don't match them, they will continue the downward spiral and if they do, then this "lowering MSRP" strategy just went out the window. How long can GM stick to this current pricing scheme, 1 month, 2 months ? The lowering of MSRP's by a few hundred dollars with one hand and removing a thousand dollar rebate with the other is is not going to increase traffic on the sales floor.

[tgagneguam]

It's my understanding that dealerships are generally profitable, so I'm not so sure I feel too much sympathy. Besides, it's also my understanding that the lion's share of dealer profits are generated on used car sales and, more importantly, from the service department.

I don't necessarily find joy in anyone's "pay reduction," though there are other cases where I think my sympathy would be more pronounced, particularly when these price/dealer margin reductions might contribute to the viability of GM.

[01cavalier]

My understanding is that dealers don't usually make much on the sale, it's the service area where they make their money. So dropping the price some shouldn't really hurt that much. I wouldn't be surprised to see Ford and DCX dropping their prices, just like they copied the employee pricing last year. This may not necessarily be original for GM to do this, but it is at least something that makes a lot more sense. If Ford and DCX just continue with rebate wars, it will be between them anyways. An overpriced car or truck has less appeal to me, and if they are trying to get my attention with some rebate, it doesn't have the result that it would have years ago and even then I did not buy by rebates.

[kenman923]

I hope it won't turn into another gimmick.

[GMCtruck]

I think the informed consumer that isn't in a big hurry to buy will just hold off and see how this plays out, especially since many new models will be hitting the streets soon. If inventory starts stacking up again, GM will have to do another fire sale to move it off dealer lots. I understand what GM is trying to do, but it could backfire on them bigtime. GM's resale values will still be lower than Honda/Toyota and smart buyers will take that into account when they do their price comparison. I know some people will say that cars aren't considered to be an investment and that's true. But resale value does matter when it comes time to trade up to a newer model in a few years.

[Nelson Kyle K]

I think the Price on the new vehicles are reasonable.

[Buickman]

The entire process will be affected by this decision. Customers will not like the decreased discounting and lessened incentives, and will wait on the sidelines. Banks will prove more difficult to deal with regarding rolling negative equity above MSRP. Dealers with reduced margins will have less flexibility in negotiating, and find themselves restricted in closing techniques. All in all, GM has the right idea, they simply have gone about this in the wrong way. Look for many dealers to consider adding additional franchises other than GM to their operations in an attempt to remain viable. Again, don't be misled as many were by the euphoria over GMS. This will play out as another major mistake by the inept marketing staff. It would be erroneous to assume that the same people who have lost so much share in the past are suddenly so in tune with the market, they aren't.

Buickman
Founder
General Watch.com