GM makes grand move - East Valley Tribune: Business

GM makes grand move

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Posted: Saturday, June 18, 2005 6:54 am | Updated: 8:29 am, Fri Oct 7, 2011.

In an effort to boost sales and thin fleets, General Motors Corp. is offering customers the same deal it gives its employees.

For the first time in the company’s history, troubled GM is handing out employee discounts to anyone who buys a 2005 car or truck.

The program, which started at the beginning of the month and runs through July 5, is so popular new car sales are expected to double on some East Valley GM lots, dealers say.

Even those familiar with the industry’s marketing say the idea is different than the many other incentives offered to peddle cars.

And they say it might even be a decent deal.

"We actually think it is, with some caveats," said Jim Prueter, senior vice president at AAA Arizona.

"From GM, we think it’s a good deal."

AAA advises its members to be wary of dealer add-ons. Some increase document preparation fees, which can vary by hundreds of dollars.

They also charge a market adjustment fee, which Prueter says is nothing more than built-in profit. And he says watch the price of options.

"Everything the dealer puts on you can buy for probably for 50 cents on the dollar as good elsewhere," he said, adding buyers should also shop for the best price for extended warranties, which can vary by thousands or dollars for the same coverage by the same company.

Tony Peloso, Arizona State University professor of marketing management, said consumers can take the employee price up-front and add normal cash incentives to sweeten the deal.

"It appears to me this is genuine as over and above what they’ve actually been doing," he said.

It’s not surprising the company is trying to move metal. GM’s automotive operations reported a loss of $1.3 billion in the first quarter and it has been reducing production volumes to balance inventories. Dealers are sitting on lots full of unsold large sport-utility vehicles.

The discount is used widely by insiders, including relatives of employees, retirees, dealership employees and their relatives and even some vendors and members of their families. The discount is good on all vehicles except the Chevrolet Corvette and GMC mediumduty trucks.

Some in the industry estimate the "employee price" is used on 15 percent to 20 percent of sales in the domestic market.

A recent newspaper advertisement for Bill Heard Chevrolet in Scottsdale offered a 2005 Chevrolet Malibu for $15,761. The ad said the car has a manufacturer’s suggested retail price of $19,905. The GM employee price was $17,761 and the dealer also rebated $2,000.

On Chevrolet.com, a 2005 Impala had an MSRP of $23,000. The employee discount price was estimated to be $18,014. The normal Internet price was not available.

The deal has been a hit since it was announced, said Eddie Davault, chief operating officer of Chapman Automotive Group, which has two dealerships in East Valley.

"Honestly, I don’t see any scam," he said. "The . . . pricing has always been a published number for employees. The dealer, at the price that’s published, makes no money, absolutely zero. But what they do is they give us a small percentage to handle the transaction. From the consumer standpoint, that doesn’t effect their pricing."

Edmunds.com, a carshopping Web site, analyzed the latest GM deals and found that the employee prices represented as much as a 12.4 percent discount from previous average transaction prices on a Saturn Vue model. For the six-cylinder Cadillac STS luxury car, the employee price of $37,040 compares with an invoice price of $38,181 and an average transaction price in May of $40,982, Edmunds said.

Edmunds estimates the employee discount will cost GM an estimated $437 million. Edmunds calculated the average invoice price for a GM vehicle at $25,997. The average employee discount is about 4 percent of the invoice price, or $1,040, and the company is expected to sell 420,000 cars in June, Edmunds said.

The campaign is dramatically increasing GM’s market share and putting the hurt on some of its competitors, according to the Power Information Network, which collects and analyzes daily newand used-vehicle retail transaction information from automotive franchises.

GM’s retail share of the new-vehicle industry is 30.3 percent through the first 12 days of June — up almost eight points from its retail share in May — according to data from more than 6,000 automotive franchises compiled by the the firm.

PIN data shows that GM’s market share is up nine points from April 2005 and seven points from June a year ago.

During the first 12 days of June, the Chrysler Group’s retail market share has dropped more than two points from May, while both Ford Motor Company’s and Toyota Motor Corp’s shares have dropped by more than a point.

The program has brought a strong response from Ford and Chrysler. Because the discount is drawing more non-GM consumers to GM showrooms, the competitors kicked off new ad campaigns this week touting their own deals and disparaging GM’s, according to AdAge.com.

Chrysler Group announced it started its "Straight Math. Great Product" campaign at its 2006 model preview press event. The deals cover Dodge, Jeep and Chrysler vehicles and are the same ones the automaker already offered this month, AdAge reported.

Ford’s national TV spot, which broke earlier this week, is themed "The Truth." The commercial plugs record sales of the new Mustang, the F-150 pickup’s record as the bestselling U.S. vehicle and the Explorer as the best-selling SUV.

The spot segues into the core message: That Ford brands’ rebates make them cheaper than GM’s employee discount, AdAge said.

Brent Berge, who has Ford, Mazda, Volkswagen and Lincoln-Mercury dealerships in the East Valley, said there is one major drawback to the discount.

"What you need to look at is your resale value on the vehicle," he said. "When you discount a new vehicle, it makes your used car not worth nearly as much. If you just bought one 6 months ago and it’s discounted, it could hurt it."

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