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GM: Enough With The Come-Ons
What the carmaker needs now is sizzling new models -- not more discounts
Business Week Online

When General Motors Corp. (GM ) launched 0% financing deals after the September 11 terrorist attacks, it did so to coax jittery buyers into dealerships again. But GM found another reason for pouring on the incentives: to steal U.S. market share from its struggling Motown rivals. For a while, the strategy worked. In 2001 and 2002, GM's market share grew at the expense of Ford Motor Co. (F ) and Chrysler Group (DCX ).

Nearly three years into the price war, however, GM's gambit seems to be running out of gas. Just look at its lousy June sales numbers. Despite incentives averaging an industry high of $4,100 a vehicle, GM sales tumbled 15%, compared with Ford's 11% slide and Chrysler's 1% advance. The No. 1 auto maker's share has shrunk to 26.8% of the market, down from 28.1% at the end of 2001. GM's solution? Bigger discounts of up to $5,000 on many of its trucks -- with some dealers throwing in an extra grand to boot. But all that discounting is hammering margins and profits per vehicle, which now are weaker than both Ford's and Chrysler's. "GM's in a tough spot," says Deutsche Bank (DB ) analyst Rod Lache. "Things will get worse before they get better."

The Detroit carmaker had bet that a bevy of new models this year would draw in buyers. But that hasn't happened so far. The new Chevy Malibu sedan has had only modest success, and the all-new Chevy Colorado pickup is piling up on dealer lots. While three new vehicles in coming months could do better, for now the weak showing has kept GM from easing off the pricey deals.



By contrast, Ford and Chrysler have some bona fide hits that sell with only minimal incentives. Chrysler's 300 sedan and Dodge Durango sport-utility vehicle are both flying off the lots. And even where they do have to cough up cash, GM's rivals have managed to limit damage from the price war. While GM tends to offer equally big deals on nearly all models, for example, Ford tries to use lower incentives on thinly profitable models like the Ford Focus; it reserves bigger giveaways for its most profitable models. "No one blinked," says Ford Chief Operating Officer James J. Padilla.

Thanks in part to those new models, Chrysler's share has inched up, from 13.2% to 13.5%, since the price war began. The new F-150 has helped Ford outsell GM in full-size pickups. While Ford's share has fallen from 21.9% to 18.8%, it has boosted profitability. GM is losing ground on both fronts.

Indeed, the one-two punch of hit models and selective discounting have allowed Ford and Chrysler to pull ahead of GM in the crucial measure of profit per vehicle. GM now earns just $436 per vehicle, a 50% drop since 2001. Chrysler gets $534; two years ago it was losing money on its cars. But No. 2 Ford has really moved to the head of the class: In two years, profits have soared fourfold, to nearly $1,900 per car. Sharp cost-cutting in the first quarter as well as a better product mix also helped. Ford not only pared low-profit sales to car rental firms, but also gets 70% of its sales from profitable trucks, vs. GM's 60%.

That would help, but what GM really needs are new hits. Otherwise, GM will be stuck on Incentives Road.

FULL Article Here

 

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This article does a good job of summing up the concerns I've had for the past year or so. The only thing I'd like to point out is that GM was not alone in doing 0% financing right after 9/11. Ford (and DCX to a lesser extent) also did it, but they've both backed away a bit. I'm really quite shocked to see that Ford is making that much profit on its models. That's a really impressive jump, especially since the bulk of their new models aren't out yet.

I think the Cobalt and G6 will help a lot, but the Cobalt is not going to be a highly profitable vehicle. Small cars like that are very thinly margined, so they need to be successful. There's a lot of hate on this board towards the Focus, but it is selling like crazy.

My favorite quote from the article: "And that would mean another blow to profits, since furloughed auto workers still must be paid"

:flush:
 

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Originally posted by awalbert88@Jul 19 2004, 12:16 PM
... I'm really quite shocked to see that Ford is making that much profit on its models. ...
It's not too surprising. Ford has placed its emphasis on profitability, less on market share. GM has opted to focus on market share at the expense of profit.

I wonder how long GM can maintain that strategy. Ford should emerge a healthy, albeit smaller, company. I really wonder what GM will look like in 10, 15, and 20 years from now.
 

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IMO, GM needs to stop focusing so much on market share. they're attempting to create cars that work for and please absolutely everyone, but that's not possible...so instead we end up with a much of bland cars that a lot of people think are "okay" but no one is getting excited about, they're not cars that people think of as first choices very often. on the other hand, look at chrysler--with the 300C they basically finally said, "forget the masses, let's make an excellent and unique car, that a lot of people will love, and some people might hate". with this logic, the car become a first choice for many people, so they're willing to pay the price for the car, you don't need incentives and rebates. whereas with GM, people end up doing something like "well, it wasn't my first choice, but it's a good car and they gave me such a deal i couldn't resist". but that doesn't exactly keep people coming back for more, and it certainly doesn't make them passionate about your vehicles. they could make more profit by selling the cars for list price at slightly lower volume than by giving 3 and 4 thousand dollar discounts on every car at higher volume.
 

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I agree that GM should focus less on market share and more on making cars that people want, but unfortunatly I'm not too sure how able they are to do that. I have heard for the last few months that GM's profits come primarily from their financing division, not from the cars themselves. So, to make money (and to fund their pension plans and other expenses), they must sell as many vehicles as possible and get people to finance them through GMAC. They simply make a LOT more money that way then they do on the vehicles themselves.

Two or Three years down the road, it's going to hurt them big time. I guess they plan on worrying about that day when it comes though.
 

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Originally posted by 3eb@Jul 19 2004, 11:37 AM
IMO, GM needs to stop focusing so much on market share. they're attempting to create cars that work for and please absolutely everyone . . .

they could make more profit by selling the cars for list price at slightly lower volume than by giving 3 and 4 thousand dollar discounts on every car at higher volume.
I must respectfully disagree to some extent. GM MUST focus on Marketshare to maintain Cash Flow. There are certain fixed costs that GM must cover each month, that are unavoidable (ie. pension, taxes, salaries - furloughed assembly workers or retained salaried engineers, etc.) The only way to cover these costs is to utilize those cash-eating entities as assets. Economics.

Pricing is based on Supply and Demand. Hopefully, the guys in Finance and Marketing have chosen the point on the Sales curve that maximizes profitability.

All that being said, GM should reasonably be able to obtain 29-30% Marketshare in the US, without such high incentives. The key is to give the consumer what they want, when they want it. Let's hope the Cobalt and G6 are as successful as the Equinox and the CTS.

The problem with the Fullsize Pickups is there are 4-5 plants making them, and they're 5 years old. Maybe when the new ones come out, we'll have the leg-up since the Fords, Dodges, Nissans, and Toyotas will all be 3-6 years old.

According to the analyst, "Things will get worse before they get better." How much better will depend on the entire portfolio each year going forward.
 

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Originally posted by giagastormer@Jul 19 2004, 06:26 PM
I agree somewhat with that article.........
I agree too. GM needs to just kill incentives and price their vehicles as they launch without incentives. Its a shame they even discount the popular Cadillacs and Saab, models that in my opinion people have no business walking into the dealership if they cannot pay full price for them.
 

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All these articles of GM's doom and market share never point out that GM is loseing nubers from olds this year. Although the alero sales were mostly fleet last year they sold 50,000 alero's last year and in 6 mo last year they sold almost seventy thousand total olds. Buick will be picking up some of that slack and pontiac the other with new models for both fill some holes left by Olds. But not till late this year into next.

Not to mention GM is up for the first 6 mos. this year dispite soft June. Up almost 15,000 units even with olds.

And of the GM brands Chevy is not the one to point a finger at. The article says Malibu "modest success" when you add classic sales to malibu sales, sales are up over 40,000 units in six months. If that modest success continues chevy will pick up almost 100,000 units this year in car sales thats a modest success I can live with. Colorado "piling up on dealer lots" GOOD!!! As a salesman we haven't been able to meet the demand for Colorado which by the way still has very little incentives to date. $2000 rebate on crew colorado I say holding well considering The doge Durago that is "flying off dealers lots with it's new Value pricing And With $4500 in rebates the last couple of months. Even with Durango's "flying off dealers lots" Dodge sales are down 30,000 units in the fist 6 months. And Impala sales up every year of production up another 6,000 units over last year. and that with less then a year away from a new model.Ford's new five hundred will have to first catch up on the 50,000 decline in car sales before it can even begin to add new sales for Ford. With a V-6 your only engine Good luck.

Hmmm Doge down 30,000 and Ford Down 50,000 thanks to its new F150, and Chevy up 40,000. Yeah thats modest success. I didn't see any mention of the new Equinox which is still selling at a pace of 7,000 last month Without a single $1 in rebates($1000 rebate ended june 15th and has not been replaced as of july 14th).

You want to pick on GM pick on Saturn down 40,000 they are the reasons for the Olds demise. But don't include Chevy or GM as a whole. Considering the number of nameplates that are ceasing production this year I think they look strong, and as there quality continue to nip the ****, and surpass the europeans, They are going to be strong.
 

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Hot Damn!

Someone actually is writing the truth about GM! So far we've had enough smoke blown up our collective backsides about the new GM recovery (styling and sales) that our buns could be a cannibal nation barbeque.

Fact: GM has not undergone any styling revolution. It has demonstrated no car designs that are leaping out of the showrooms. Pontiac's new designs are slow sellers; the Malibu is a half-assed executed car that has all the best it could have from the back bumper to the a pillar but was stuck with a front end and engine that are second class, laughing stocks of the industry. Cadillac only has recovered from a coma by now managing to keep new dust from piling up on the showroom floors. Cars there aren't well-styled though they have finally found engineering. Imagine what could happen if the Arts and Sciences look was executed by someone from a design school not for the blind. Buick is going south and will be following Oldsmobile. Not even the LaCrosse, or is that LeToss, will do much to resurrect a division that is grandpa's last gasp before being transported in a 20 year old Cadillac hearse. Saturn has had life support pulled off it and is redlining into oblivion.

Fact: GM and trucks are jokes. When they introduced their last new full-sized pickup trucks they were already old looking. GM, not to scare off their conservative buyers, decided to take the safe road and launched trucks that were more yawners than screamers. Even the grafting of the ugliest front end save for the Titan in the truck industry has done nothing to make GM look like a company that has a clue how to build a modern truck. Used to be a boxed frame was enough to sell a truck. Problem was GM spent the money on hydroforming and skimped on the interiors of their trucks. Compared to even the marginal Titan interior, GM still looks like Martha Stewart's soon to be prison cell.

Fact: The Soul has been sucked out of GM. When the Camaro and Firebird were allowed to fester in their last several years, GM basically raised its rear end and said "do me" to the industry. When they canned these cars (hardly fine vehicles at that point by modern standards) they signalled to the rest of the industry that GM could no longer produce a fun, inexpensive muscle car that was homegrown. Lately GM has tried to build Kangaroos and done enough cosmetic work to try to sell them as French Poodles, but real Americans know that there will never be an Aussie GTO no matter how many GTO letters you stick on it. The new Corvette is nice enough, but is merely now a Girlie Man in a marketplace that has some serious cars.

Fact: Before too long, GM will be selling rebates and giving away cars. You can already test drive a GM and buy a Ford and get paid to do it.

All in all my guess is that GM is run by the same management team that runs NASCAR. If GM isn't run by this redneck mafia, at least they both have their collective heads up the same location!
 

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while i agree with many of your points, extreme as they may be, your argument against the corvette is an ungrounded cheap shot. your only objection to the vette could be its styling, which is a matter of opinion with this car as just as many will say it's the best looking vette yet as those who will say it is ugly. performance-wise though, saying the vette is "girlie man" is the most mentally handicapped statement i've heard in a while. yes there are a lot of extremely serious cars in the corvette's segment, but how many of them are significantly better and cost less than 80 grand? much less 45 grand!?!? the vette is every bit as serious as its competitors, and costs much less. insult GM all you want, but the corvette is still the best sports car deal in the business, whether you like the way it looks or not.
 

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I have to agree mostly with you laserwizard, there are no ground breaking products, some make a faint stab at the all new must have autos (i.e. Avalanche,Envoy XUV) and so on , but none at the key demigraghics, none at the masses.

I do believe thier products need alot of sprucing up, but I think with all the incentive and net costs they just can't head down that road right now. Hoping cars like the GTO,Malibu, Colorado, and such will help pull them out of this state.

If someone only knew 9/10- that all of this would happen. But no one was, so we are here and now, it is going to take a very long time to pull out of the spiral. First by being willing to lose some M.S., then making more profit, then investing the profit into new product.
 

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Lazerwizard, while I do appreciate your sardonic humor ("...So far we've had enough smoke blown up our collective backsides about the new GM recovery (styling and sales) that our buns could be a cannibal nation barbeque."), you tend to confuse your opinion with fact. While many would agree with what you have said (and I admit I partially agree with a few things), not one statement you said is fact:

Fact: GM has not undergone any styling revolution.

Fact: GM and trucks are jokes.

Fact: The Soul has been sucked out of GM.

Fact: Before too long, GM will be selling rebates and giving away cars.
 

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Originally posted by laserwizard@Jul 19 2004, 04:32 PM
Fact: GM has not undergone any styling revolution.
The Malibu is the glaring one that doesn't make sense to me, especially the Maxx. Their are 4k rebates on the maxx right now. Why when the cooler G6 models are being slowly introduced in a launch of each model, was GM able to get the Max out at the same time (or close?) as the regular model, and already neading a 4k rebate?

I think some GM styling is really great. The Vibe is way better than Toyatas Matrix in terms of design/look. Trailblazer/Envoy are cool. I like the Vette and even the GTO is a cool enough car that hopefully grows into something better. I think they are getting better on the minivans. Cadillac is cool and they are doing some nice design. I think what is interesting is that with all the hype about Cadillac, their styling is actually pretty simple. Simple/clean can be good. Accord, Camry, 1st Gen Taurus, even Lumina. Personally if the next Taurus (500?) is as good as the pictures I'm going to throw big kudos to Ford.

But..they still seem to be a big step behind. I can't wait to see the Solstice, but what about the mainstay cars? I see cool wagons from Dodge (I love the magnum, and apparently the public does by good sales), Mazda 6 wagon is very nice. I'd put the Vibe in this category. But the Maxx doesn't seem to offer the cool wagon look or size. How can they get it right with the Vibe, but so off on the Maxx?
 

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Why does everyone complain that GM is putting too much money into "niche vehicles" and then come on here and complain that all they do is look at marketshare. Niche vehicles are an excellent chance to make money (DON'T YOU DARE PUT INCENTIVES ON THEM GM!!)

Chevy trucks need to be redesigned. There's simply no way around it. Trucks aren't just used on the farm anymore. They need to be constantly redesigned.

Cadillac and Saab should never never never have rebates. What are they thinking? You want something that will suck the resale value out of a car? Put rebates on it. Saab and Cadillac should be luxury cars and luxury cars should be able to sell themselves.

The Cobalt and the G6 will hopefully bring people back into the showrooms. I love what Lutz has done with the Cobalt and I think it's gonna be a smash. Hopefully they can put some more modest rebates on them. Maybe 1,000 per car? It's already a fairly cheap car and the quality seems like it will be better than the Cavaliers. And don't anybody cry wolf when it gets a slow start out of the gate. Remember, Chevy made the very stupid decision to sell them next to the 2005 bargain bin Cavalier. I really wish they would have made a hatchback version of the Cobalt and brought all the G6 models out right away.

I think the GTO will be a successful car in the long run for Pontiac. The reason nobody is buying them now is that everyone knows they will get better handling and more power in a few years.

Impalas are selling well. They're not making money but they're selling well. Give up marketshare for profitability and then attempt to regain it when they have more attractive vehicles and a better image.
 

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Originally posted by laserwizard@Jul 19 2004, 09:32 PM
Hot Damn!

Someone actually is writing the truth about GM! So far we've had enough smoke blown up our collective backsides about the new GM recovery (styling and sales) that our buns could be a cannibal nation barbeque.

Fact: GM has not undergone any styling revolution. It has demonstrated no car designs that are leaping out of the showrooms. Pontiac's new designs are slow sellers; the Malibu is a half-assed executed car that has all the best it could have from the back bumper to the a pillar but was stuck with a front end and engine that are second class, laughing stocks of the industry. Cadillac only has recovered from a coma by now managing to keep new dust from piling up on the showroom floors. Cars there aren't well-styled though they have finally found engineering. Imagine what could happen if the Arts and Sciences look was executed by someone from a design school not for the blind. Buick is going south and will be following Oldsmobile. Not even the LaCrosse, or is that LeToss, will do much to resurrect a division that is grandpa's last gasp before being transported in a 20 year old Cadillac hearse. Saturn has had life support pulled off it and is redlining into oblivion.

Fact: GM and trucks are jokes. When they introduced their last new full-sized pickup trucks they were already old looking. GM, not to scare off their conservative buyers, decided to take the safe road and launched trucks that were more yawners than screamers. Even the grafting of the ugliest front end save for the Titan in the truck industry has done nothing to make GM look like a company that has a clue how to build a modern truck. Used to be a boxed frame was enough to sell a truck. Problem was GM spent the money on hydroforming and skimped on the interiors of their trucks. Compared to even the marginal Titan interior, GM still looks like Martha Stewart's soon to be prison cell.

Fact: The Soul has been sucked out of GM. When the Camaro and Firebird were allowed to fester in their last several years, GM basically raised its rear end and said "do me" to the industry. When they canned these cars (hardly fine vehicles at that point by modern standards) they signalled to the rest of the industry that GM could no longer produce a fun, inexpensive muscle car that was homegrown. Lately GM has tried to build Kangaroos and done enough cosmetic work to try to sell them as French Poodles, but real Americans know that there will never be an Aussie GTO no matter how many GTO letters you stick on it. The new Corvette is nice enough, but is merely now a Girlie Man in a marketplace that has some serious cars.

Fact: Before too long, GM will be selling rebates and giving away cars. You can already test drive a GM and buy a Ford and get paid to do it.

All in all my guess is that GM is run by the same management team that runs NASCAR. If GM isn't run by this redneck mafia, at least they both have their collective heads up the same location!
O boy Laser. You might get an earful with those comments.

I agree with what you and the article had to say. GM had strong momentum coming out of the 90s and into 2000, but it seems like somebody let the air out of GM's ballon. It isn't going anywhere now and that is going to hurt it in the future. Will GM get its act together? I don't know. I really don't know. It just seems to me that they are so out of touch with the market today that they seem to be only convincing themselves that an American Revolution is happening. I guess the consumers missed that memo.

I still think the problem is management. I still get a sense that GM is run by bean counters and manufacturing experts instead of car people. I thought Lutz would give GM a swift kick in the rump, but it appears he is becoming one of the same mindset.

I don't know. When we competed against GM it was a tough company to compete against. The cars maybe weren't the best, but GM was a company that was not to be messed with. Now, it seems like GM has grown old and frail - afraid to really take on the competition. I never thought in a million years that there would be no Camaro or Firebird. I never thought I would see Oldsmobile leave the marketplace. When we sold Chryslers, we constantly had all kinds of trouble selling against Chevy and Oldsmobile. Now, it is hard to believe it is gone.

GM needs to find its soul fast. I hope people are right in saying that wait for Lutz's stuff to come out in 2005 - 2007. However, I'm afraid that it may be too late. The damage has been done in that many Americans will no longer think of GM in certain segments like minivans or entry level luxury cars or maybe even subcompact cars. Americans have found alternatives to what GM and Detroit offer and they may never come back again. The desperate attempt to use any and all marketing tools just to get people in the showroom shows how far GM has to go before it really, really stands tall.

Products are extremely important, but I think the problem runs deeper than that. Who are these designers that style some of today's GM cars? I hear Brian Nesbitt is a big Chevy fan, so why not let him go with the Chevy cars and trucks? It's a start. There has to be more like him.
 

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Is there some unwritten rule that factory rims have to look like crap? Those chrome rims are hideous! They look like they were designed in a 3rd grade art class by some kid who couldn’t hold the pencil straight when he drew the wheels. If you are going to use the material and use chrome then why not get a decent design? Open a rim magazine from Kroger and get a clue already!!!
 

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Originally posted by idontcareican@Jul 20 2004, 12:47 AM
Is there some unwritten rule that factory rims have to look like crap? Those chrome rims are hideous! They look like they were designed in a 3rd grade art class by some kid who couldn’t hold the pencil straight when he drew the wheels. If you are going to use the material and use chrome then why not get a decent design? Open a rim magazine from Kroger and get a clue already!!!
And that's not just GM. I've never understood why stock rims look like crap. The 18's on the Cobalt should be impressive tho :D
 

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I don't understand it!!! They pour on incentives on cheap, stupid vehicles to make it sell until they can redesign it? Is that the way to do it, when smaller Toyota and Honda are making as much money and offering little incentives?
 

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I just like how he snuck in the picture of the CSV at the end. Its always a CSV at the end of a negative article. :D
 
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