As the auto industry has been booming, some investors have been disappointed that General Motors (GM) has not been making as strong of gains as other companies. Its new money-back, no-haggle-price promotion is an attempt to attract more customers and gain market share, but in comparison to promotions involving Chrysler, Nissan, Honda (HMC), Toyota (TM), Ford (F) and even eBay (EBAY), this does not seem like such a big deal. I think the General Motors promotion has received too much hype and will ultimately have no significant impact on the company. Due to its low price, I suggest watching for other developments, but I would not recommend this stock quite yet.
General Motors is currently trading around $21, which is at the low end of its 52-week range of $19 to $31.30. It has a market cap of $31.11 billion and a trailing P/E of 5.98. GM's revenue and gross profit numbers are up from this point last year, though perhaps not as much as investors would like.
Other companies have been passing by General Motors this year, as auto sales grew by 15% industry-wide, but sales increased by just over 6% for General Motors' Chevrolet brand. As a result, General Motors is offering a 60-day money-back promotion, where customers will be able to return unwanted new Chevrolet, GMC, Buick, and Cadillac vehicles within 60 days of their purchase. The requirements are quite reasonable, furthermore, as the vehicle must be undamaged, it must have less than 4,000 miles, and the customer must be up to date on payments. The return may occur between 30 and 60 days after the purchase, and a full refund will be granted to the customer. This promotion will go through September 4, 2012.
There is more to the promotion as well, as General Motors is also offering no-haggle prices on its 2012 Chevrolet models. The company is providing the best possible price for those vehicles to eliminate the need for haggling. While some have noted how this promotion eliminates the dreaded activities of haggling and committing, I really do not think this is such a huge thing. General Motors has done this before, and only about 1% of sales resulted in returns, showing how most customers do not really care about the return possibility. I also think the no-haggle prices will only have a minor effect. This promotion does not necessarily mean that the customer is saving money, so I do not think it will draw in many additional customers.
This move is small, furthermore, in comparison to promotions from Chrysler and Nissan. Chrysler is allowing customers to avoid monthly payments for the first 90 days, which is the same as its May promotion that helped to increase deliveries by 30% from the previous May. Nissan has tried to boost sales by offering one percent finance on new car purchases. Ending July 15, this is only a one-week promotion, but it demonstrates another case where there are fiscal rewards for customers. This is the biggest thing lacking from the General Motors promotion, and I think promotions like these from Chrysler and Nissan will be more effective.
Even eBay is taking part in the money-saving promotions, as it recently tried to essentially hold car auctions in reverse. This included vehicles from Ford, Dodge, Jeep, and others, and eBay would lower the price every hour until the vehicle sold. This does not necessarily mean much for eBay stockholders. It does show, however, that there are even more promotions out there where customers could save money. I think this is just one more thing making the General Motors promotion seem rather unimportant.
Honda is currently trading around $32, and its 52-week range is $27.52 to $41.23. Its market cap is $58.32 billion, and its trailing P/E is 21.96. Honda's 1Q 2012 numbers look good, as revenue and profit are up substantially, especially after a week 4Q in 2011.
Adding to the other money-saving promotions, Honda is using this same idea to draw customers to its new electric Fit. Anyone who chooses to lease a new Honda Fit EV will receive free collision insurance. This is only a small way to draw in more customers, but once again, it will surely save them money. This is not the biggest deal for the company, and Honda has been on a slightly downward trend recently. With that in mind, I do not recommend this stock, but I think this move is another thing dampening the excitement about the General Motors promotion.
Toyota is currently trading around $80, and its 52-week range is $60.37 to $87.15. Its market cap is $122.40 billion, and its trailing P/E is 34.11. Remember when I suggested that GM investors may wish that GM's revenue and profit were up more from 2011? That's because Toyota's numbers are way up. Its gross profit is up to over 750 billion JPY (from about 505 billion in March 2011). Revenue is up about 20% as well. These are the kind of numbers investors would like to see as a result of a healthy auto industry.
Toyota is taking a slightly different route, as it has decided to offer the chance to win a Prius through its "Exit the Highway" campaign. This campaign encourages people to drive to over 60 different attractions through scenic routes, emphasizing the environmental benefits of the Prius. This will not save money for most customers, but it presents an opportunity and highlights benefits of the car like its fuel economy. Therefore, I think this is a relatively good promotion for Toyota, a company that has already improved sales more than General Motors this year. As the stock has been trending downward a little, I would not recommend Toyota stock at this time, but I do recommend keeping an eye on this successful company.
Ford is currently trading around $9, which is at the low end of its 52-week range of $9.05 to $13.44. Its market cap is $35.53 billion, and its trailing P/E is 1.98. Gross profit is up from the last two quarters but still is not at the level of early 2011, when profit margins were over 25%.
Ford is also offering a promotion, as customers will have the chance to win a new, customized Ford Mustang. This will attract people to Ford's Mustang customizer website, as participants will customize their own cars on the site and submit them to the contest. They will also have to promote their cars in various ways, as more promotions lead to more entries into the monthly contest. There will be contests for four months, so four winners will receive their own customized vehicle for free. Of course, this will be fantastic advertising for Ford at the same time, so this seems like a great idea. This is not the biggest event for Ford, so I would look at other developments with the company before acting on the stock. With such a cheap price at the moment, however, I would recommend Ford stock.
General Motors may be receiving a lot of publicity about its newest money-back guarantee and no-haggle price promotion, but there is no guarantee that this will be effective. In fact, I think it misses on the most important aspect of a promotion - the opportunity to save money or win something. Not all of the current auto promotions are huge. Ford and Chrysler seem to be offering the best ones. With most, however, the customer can save money, and people cannot really do this with the one from General Motors. Few people want to return vehicles after buying them, and I think this promotion will have no real effect on General Motors. Even with a low price, I do not recommend General Motors stock at the moment, as I do not think it is ready to rise in price yet.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.