The heads of General Motors and Ford this week said that last summer’s employee discount incentives were a big success but US automakers can’t continue to offer huge discounts.
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“Longer term, it’s not healthy for the industry, and frankly it’s not sustainable,” Ford chairman and CEO Bill Ford told The Associated Press after announcing the company’s third-quarter earnings.
The news agency said General Motors was the first of the US Big Three to let customers pay the employee price for vehicles in June, and its sales shot up 41% that month. Ford and Chrysler followed in July and all three ended the programs in the week of September 30.
In an interview with The Associated Press, GM chairman and CEO Rick Wagoner called the employee-discount incentive “an absolute home run” and said it was GM’s most successful incentive ever in terms of the number of new customers it brought to the brand, the cost to the company versus the benefits, and the low impact on dealers’ profits. GM’s Keep America Rolling promotion after the September 11 attacks in 2001 was the second most successful, Wagoner said.
Wagoner reportedly said he didn’t regret Keep America Rolling, even though it helped start an incentive war that hurt profits and helped Asian competitors who typically offered lower incentives. Incentives have gone as high as $4,500 per vehicle or more.
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By GlobalDataThe average incentive in September was $2,600 per vehicle, but for Asian brands it was $1,000 less, Merrill Lynch auto analyst John Casesa said in a recent report to investors cited by AP.
“We had a good hand and I think we overplayed it,” Wagoner told the news agency. “We’re not alone in that, by the way, and others are still playing that hand as they surpass us now in incentive programmes.”
Both Ford and Chrysler outspent GM on incentives in September, which hasn’t happened since October 2001, Casesa told AP.
Bill Ford reportedly said it’s difficult for US automakers to back away from incentives because they have too many US plants and must get rid of the inventory they produce.
“The issue is structural. We have too much capacity in the US, and as long as that happens, someone is going to blink and play the rebate game,” he said.
According to AP, Wagoner agreed that backing away from incentives is difficult.
“The hardest thing you do in this business, if you’ve got something successful – whether it’s a product, a business strategy or marketing strategy – is when do you move off success to go to the next paradigm?” he said.
The Associated Press said both Wagoner and Bill Ford expressed confidence about their companies’ new sales strategies. Ford and GM have dropped overall prices on vehicles and cut back incentives, and they plan to stress the vehicles’ value in advertising rather than big discounts.
Wagoner reportedly said employee-pricing taught GM that consumers like transparent, value-based pricing rather than incentives that can make the price difficult to figure out.
“That’s an important trend. Now we have to get our whole machine – from us down to retail – operating in the most efficient way under that mode, and it’s moving, but it’s going to take a while,” Wagoner told The Associated Press.
