Boozer
08-02-2005, 08:11 AM
General Motors' employee discount pricing incentive program (which ends Aug. 1, 2005) has not only dramatically jump-started sluggish sales at the world's number one automaker -- up 41 percent last month, according to company spokesmen -- it has prompted both Ford and DaimlerChrysler to offer similar deals to consumers.
All three major U.S. automakers have been selling vehicles at "in house" prices formerly available only to company employees. The discount varies from model to model, but is worth approximately 3-4 percent off the dealer invoice price of a new car, truck or SUV.
That can amount to a savings of several thousand dollars per vehicle off MSRP "sticker" -- and has helped GM, Ford and Chrysler to clear out the glut of inventory that had been accumulating on their dealers' lots.
But while these incentives programs have been great news for consumers, in the long run, they could spell disaster for the Big Three. Fire sale prices on new vehicles may move product, but don't necessarily enhance the bottom line -- especially when the import competition hasn't had to resort to radical price cuts to attract buyers into their showrooms.
GM reported record losses of $846 million earlier this year -- the largest single quarterly loss since 1992. And GM's overall market share has dropped to about 25.4 percent, a dramatic downturn. The value of GM shares has fallen through the floor to junk bond status -- vitiating nearly $13 billion in shareholder equity.
Ford has also taken a beating -- with overall sales falling for the past 13 consecutive months. Even the once big-selling Explorer SUV is slipping, with sales down substantially this year.
Chrysler has fared slightly better -- in part because of the success of new models like the well-received 300 sedan -- but there's no question times are tough in the Motor City.
It's an open question whether an incentives-based bump in sales in the short term -- even a very big bump -- translates into long-term red or black ink for America's Big Three.
Indeed, the most recent data shows GM still hemorrhaging badly -- posting second quarter losses of $318 million, or 56 cents per share. Total revenue at the company fell to $48.5 billion from $49.3 billion.
None of this is good news.
Consumers now have an idea about the true mark-up on GM, Ford and Chrysler vehicles -- and are not likely to be interested in paying anything close to MSRP once the employee discount programs end. In order to maintain sales momentum, GM has already announced it will lower the MSRPs of its vehicles -- a de facto extension of the current lowball pricing structure. But that necessarily means lower profits per vehicle for GM -- and Ford and Chrysler, if they follow suit.
This is a terrible catch-22 situation for the domestic Big Three. If the only way they can lure buyers into showrooms is by selling vehicles at a loss or at profits point so low that it doesn't cover the cost of their automotive operations it's really only a question of how long they can string things out before a crash becomes inevitable.
Like the red giant stage of a dying sun, the spectacular summer sales fireworks may just be the prelude to an ugly implosion.
All three major U.S. automakers have been selling vehicles at "in house" prices formerly available only to company employees. The discount varies from model to model, but is worth approximately 3-4 percent off the dealer invoice price of a new car, truck or SUV.
That can amount to a savings of several thousand dollars per vehicle off MSRP "sticker" -- and has helped GM, Ford and Chrysler to clear out the glut of inventory that had been accumulating on their dealers' lots.
But while these incentives programs have been great news for consumers, in the long run, they could spell disaster for the Big Three. Fire sale prices on new vehicles may move product, but don't necessarily enhance the bottom line -- especially when the import competition hasn't had to resort to radical price cuts to attract buyers into their showrooms.
GM reported record losses of $846 million earlier this year -- the largest single quarterly loss since 1992. And GM's overall market share has dropped to about 25.4 percent, a dramatic downturn. The value of GM shares has fallen through the floor to junk bond status -- vitiating nearly $13 billion in shareholder equity.
Ford has also taken a beating -- with overall sales falling for the past 13 consecutive months. Even the once big-selling Explorer SUV is slipping, with sales down substantially this year.
Chrysler has fared slightly better -- in part because of the success of new models like the well-received 300 sedan -- but there's no question times are tough in the Motor City.
It's an open question whether an incentives-based bump in sales in the short term -- even a very big bump -- translates into long-term red or black ink for America's Big Three.
Indeed, the most recent data shows GM still hemorrhaging badly -- posting second quarter losses of $318 million, or 56 cents per share. Total revenue at the company fell to $48.5 billion from $49.3 billion.
None of this is good news.
Consumers now have an idea about the true mark-up on GM, Ford and Chrysler vehicles -- and are not likely to be interested in paying anything close to MSRP once the employee discount programs end. In order to maintain sales momentum, GM has already announced it will lower the MSRPs of its vehicles -- a de facto extension of the current lowball pricing structure. But that necessarily means lower profits per vehicle for GM -- and Ford and Chrysler, if they follow suit.
This is a terrible catch-22 situation for the domestic Big Three. If the only way they can lure buyers into showrooms is by selling vehicles at a loss or at profits point so low that it doesn't cover the cost of their automotive operations it's really only a question of how long they can string things out before a crash becomes inevitable.
Like the red giant stage of a dying sun, the spectacular summer sales fireworks may just be the prelude to an ugly implosion.