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GM lets everyone in on its discount

All buyers can have the same deal that its employees get

May 28, 2005


General Motors Corp., hoping to clear dealer lots of growing numbers of unsold models, is trying yet another tactic to drum up sales.

GM will announce Wednesday that it will offer all buyers the same discount that employees get, giving consumers nationwide thousands of dollars off the price of every 2005 car or truck except the Chevrolet Corvette, a person familiar with the plan said Friday. The employee discount varies by model.

The new program, to be unveiled publicly the same day that GM is expected to report another weak month of U.S. auto sales, could help trim high inventories of cars and trucks. That particularly means full-size pickups and sport utility vehicles, sales of which have suffered due to record high gasoline prices, dealers said.

Weakening sales for GM's aging truck lineup, including its most profitable models, were a major reason why GM posted a $1.1 billion loss in the first quarter, its worst result since 1992.

Dealers contacted by the Free Press said they would welcome the program.

"If that's what they're doing, I think that's great," Lynn Thompson, co-owner of Thompson Pontiac-GMC-Cadillac-Saab in Springfield, Mo., told the Free Press in a telephone interview. "I'm not selling as many as I need to," he said about GM's large SUVs.

A GM official declined to comment.

With gasoline prices hovering at around $2 a gallon and GM's truck lineup several years older than competitors' models, many of GM's most profitable vehicles sit unsold at dealerships. Dealers have enough supply of the Cadillac Escalade SUV, once one of its hottest models, to last 139 days at the current selling rate, according to Ward's Automotive Reports. GM's preferred rate would be about a 70 to 80 day supply.

The days' supply is even higher for some other models, such as the Pontiac Montana SV6 minivan, the Chevrolet Avalanche pickup truck and the GMC Yukon XL SUV.

"GM still has to clear excess inventories, particularly of their trucks. The new incentives suggest that sales were soft in May," said David Healy, an automotive analyst with Burnham Securities, which manages mutual funds and large individual investors.

One reason GM may be anxious to move out the older trucks is to make room for a new generation of large pickups and SUVs, code-named GMT-900, expected to hit dealerships early next year.

GM executives have said in recent months that they hope to back away from offering large incentives on their vehicles, which analysts said has weakened the strength of some GM brands and hurt the trade-in value of GM vehicles.

Over the last two months, GM's Hot Button Event promotion gave consumers the chance to win one of 1,000 GM cars and trucks when they visited a dealership. For the many consumers who didn't win a vehicle, GM also offered a $1,000 cash bonus applied to the purchase or lease of a new 2004 or 2005 model year GM car or truck. "It's driven a lot of traffic in, but I haven't sold a lot of cars off it," Thompson said.

With the new program, GM appears to be returning to the tried and true model of keeping incentive programs simple and compelling, the same formula that helped spark sales shortly after the Sept. 11 attacks.

"I think maybe some buyers have been turned off by fairly complicated incentives, where there are five or six options," Healy said. "Maybe it's a K.I.S.S. program ... Keep It Simple Stupid."

Last November, with interest rates on the rise, GM unveiled its Lock 'n Roll promotion, offering consumers the chance to lock in a low financing rate on both a new vehicle and a second GM vehicle in a few years. But dealers said the offer was too complicated, and GM officials acknowledged it failed to meet expectations.

GM's U.S. sales are expected to drop about 5.7 percent in May, according to Ward's. Through the first four months of the year, GM's sales dropped nearly 5 percent.

Even as sales have dropped, GM has favored cutting inventories by temporarily shutting its plants in tandem with its incentive spending, according to a report issued this week by John Casesa, who studies the auto industry for investors at the brokerage Merrill Lynch.

"Market-share losses, however, continue to undermine GM's efforts to get its house in order, and year-over-year declines in production will likely be the norm through the end of this year, until GMT-900 production begins to ramp up," Casesa said.

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