Buy a GM Car, Get 50 Shares Free?! 11 comments
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(From the WSJ): "The steady stream of bad news coming from the U.S. automotive industry prompted one Texas dealer to take some creative license on its latest incentive: Buy a new car, get 50 shares of General Motors (GM) stock.
Frank Kent Motor Co., based in Fort Worth, will give away the shares to the first 100 customers who buy a Cadillac, Buick, Pontiac, GMC or Hummer. The stock gift, currently valued around $325, would be in addition to any incentive offered on the vehicles.
"We thought this would be a way for us to break through the clutter that is out there, give back to our customers and hopefully create some more faith in America and GM," said co-owner Will Churchill.
Dealers and auto makers have been pushing incentive boundaries all year amid a souring economy that has kept consumers out of showrooms. Earlier this year, Chrysler offered a gasoline card that locked in costs for buyers of new vehicles at $2.99 a gallon for three years. Volkswagen offered to deposit $1,500 into a college account for customers who make a down payment on the new Routan minivan. A few dealerships have even offered half off their pickup-truck inventory.
The stock gift could raise some eyebrows since GM shares are at their lowest levels in six decades. The dealership has already spent $30,000 to buy about 5,000 shares in preparation for the offer, Mr. Churchill said...
...October is shaping up to be one of the worst sales months for U.S. dealers this year. Sales of cars and light trucks in September dropped 27% from a year earlier to 964,873 vehicles, the first time since February 1993 that monthly sales fell below one million.
Ford Motor sales have dropped 17% through Sept. 30 while GM has declined 18% and Chrysler has fallen 25%. The declining sales have fueled speculation that there could be a U.S. auto maker consolidation with GM acquiring Chrysler."
The fundamental problem with the incentive and promotional programs offered by Detroit is that by establishing themselves as the low cost provider, they're actually cementing the idea(s) in the minds of customers that they're products are lesser/inferior/not as valuable as those offered by the competition. In other words when Consumers elect to spend more money on a Honda Accord vs. a Chevy Malibu they feel like they're getting more value for their money, so offering a Chevy Malibu for less (or selling it with deep discounts, incentives, etc) simply validates the consumer's original opinion.
E.g. discounts aren't going to work in a marketplace where the consumer has explicit stated that they would rather pay more for the competitor's products.
Better yet who has the more valuable product: the company that has to give away part of the company and bribe you with heavy incentives to buy their cars, or the company that offers minimal incentives and sells more cars despite having higher prices? Detroit cannot sell the American consumer on the value of their products when they have to damn near give them away in order to get them off the lots.
Not to mention the fact that the foreign automakers are often a more attractive array of products; no one cares if a product they're not interested in is on sale/offered at a steep discount. It's hard to sell people on the idea of "Buy American/Have Faith in Ford (F)/GM (GM)/Chrysler", if the consumer in question feels as if they have to choose between the foreign car they want and a domestic one they think is inferior/they're not especially interested in. At least, that's often how I feel when I get ads in the mail from the local domestic dealers.
Mind you, I understand the potential economic damage that would be caused by one of the Big 3 failing, but what average consumer can afford to make a $20-$30k sacrifice just to save Detroit?
Discounts aren't the solution, Detroit has to rebuild their brands, sell the consumer on the value of their cars and simply build world-beater products so that the guy with the Accord feels like he got a raw deal compared to his neighbor with the Malibu.
Admitted the above is easier said than done and it's a hard thing to think about when you're just trying to product market share and halt sliding sales, but it's the only thing that will save Detroit in the long run.
Of course, for the time being Detroit has to worry about its immediate survival and at this point (recent merger deals notwithstanding) I think the American car companies may have to become GSEs to survive. It's fatuous to think that two failing companies that are burdened with product duplication, weak brands and debt up to the stratosphere can survive by joining forces. GM already has too many brands and buying Chrysler's (with what money?!) isn't going to solve anything; it's nothing more than a desperate shot to get at Chrysler's credit lines and is only a very short-term solution that creates significantly larger medium to long-term problems.
You can read more here.
Sources:
The WSJ: "Buy a Car, Get a Stake in Company" -- Jeff Bennett, October 20, 2008.
Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.
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This article has 11 comments:
Guess I won't be buying a GM vehicle anytime soon.
If Marhkam did any actual research he would realize that the auto market right now is 3-4 million vehicles less than the last 2 years. This is why Toyota is now offering 0% financing, just like the US 3.
For a consultant Markham does very little research and his opinions, at least on this industry, are consistently outdated and incorrect. I hope his actual customers get a higher level of service.
What say you to the fact GM was offering employee discount pricing last month in an effort to prop up sales? Isn't that the largest incentive a car company can offer?
Toyota may have been offering 0% financing to a few select customers, but let's not forget that Toyota turns a profit per car sold and GM wasn't doing that BEFORE their deep discounts.
How about the fact that you can still lease a Japanese or German car and the American car makers are discontinuing their leasing programs?
If the demand for the Malibu is so high that it is selling for a higher price than the Camry (I've seen no evidence of this), how do you explain the fact that the Camry is outselling the Malibu by nearly 2.5:1? Per a recent WSJ article GM sold 16k Malibus in July and Toyota sold 42k.
I seriously doubt recent numbers would show much of a difference.....
You may find my articles to be poorly researched, however I don't see any data that supports your view of the world and would be happy to review it if you would point me to it.
As always, thanks for reading
-M
Toyota is offering 0% financing to everyone on every model except the Prius and Yaris (no special offers) and the Avalon (2.9%) and (Camry Solara 3.9%). Here is the link:
www.buyatoyota.com/Spe...=
Employee pricing is much cheaper for GM right now than 0% financing. With GM's & GMAC's credit rating at junk bond levels the point spread between the rate they borrow the $ at and 0% is too high. Keep in mind that GMAC doesn't charge GM 0%, so GM's spread is even higher.
GM went with the big incentive earlier than Toyota because they have less cash than Toyota. Toyota held out longer hoping the market would recover in September. When it got worse they needed to recover volume and went with the big incentive. Even for Toyota 0% financing has to be very expensive right now.
You can still lease an American car, just not thru their captive financing organizations (GMAC, Ford Motor Credit, Chrysler Finance). The reason they stopped leasing is because the American companies sell way more trucks than the Japanese and Germans and the bottom fell out of the auction market for trucks & SUVs last summer which resulted in big losses when the finance companies had to sell the vehicles for far below the residual value.
Here is a NY Times article that explains the problem and why discontinuing them makes good sense:
www.nytimes.com/2008/0...
Leasing is actually one of real problems the American companies created for themselves. Leasing requires the finance company to assign a residual value to a vehicle 3-5 years before they plan to sell the vehicle. If the market changes, like it did this year with the price of gas, the companies are forced to spend cash to pay for vehicles they already sold.
The Toyota Camry outsells the Malibu because it has been a market leader in that category for 25 years and the new Malibu came out last November. No matter how good the car is, it will not overtake the Camry in less than 1 year.
Here is an article from Edmunds AutoObserver describing the success of the Malibu in significantly increasing its avg transaction price over the previous version: www.autoobserver.com/2...
Here is an article from Motor Authority showing that almost 1/5th of Malibu buyers replaced import vehicles: www.motorauthority.com...
And just for grins, the editors of Kelly Blue Book voted the Malibu the top mid-size sedan over Accord and Camry here: www.prnewswire.com/cgi...=
Your article claims that GM needs to produce a car that can sell without needing discounts (Edmunds article) and attract buyers from import brands (Motor Authority article). The Malibu does both.
Unfortunately the article describing the higher transaction price for Malibu over Camry is no longer on line. However, I would love to see your references for how poorly this vehicle is doing.
Stick to what you know, which is obviously not the Auto industry.
Awards: www.chevrolet.com/2009.../
Best in Class Highway Mileage: www.chevrolet.com/pop/...
JDPower Highest Initial Quality: www.chevrolet.com/pop/...