It's no secret that General Motors is spending lots of money on incentives to steal market share and keep its plants running full tilt. The auto maker's much-publicized 0% financing deals powered a 24% sales gain in July in a market that was up a comparatively low 8%. But GM has another trick that has brought in plenty of buyers: Discounts offered through its GM Mastercard.
The incentive program has earned a quiet but powerful windfall for GM, so successful that GM is planning to cut back on it. But the retreat won't take effect for another year. In the meantime, expect thousands -- if not millions -- of potentially eligible car buyers to take advantage of the plan, giving GM a big boost in its bid to gain market share.
SPEND AND SAVE. Since the auto maker launched the credit card in 1992, 3.8 million buyers have taken advantage of its car-buying incentives to leave showrooms in GM vehicles. On an annual basis, that's almost 2 points of market share for a company that considers a gain of 0.2% above its current 28.5% stake as a success. It works like this: GM credits its 6.9 million cardholders with cash on a new-car purchase equal to 5% of card charges. Buyers can earn up to $500 a year over seven years for a maximum benefit of $3,500 on the purchase of a single vehicle.
In addition, GM workers, their families, and employees of GM's dealers and parts suppliers -- who represent up 10% of cardholders -- can add employee discounts of up to $3,500 to the credit-card benefits for a potential saving of $7,000. They could even add that savings to 0% financing or any other existing incentive on the market. Says GM Card general manager Jack Bowen: "We think this is a huge advantage as we try to get our market share above 29%."
Problem is, the program has been almost too successful.
TIME LIMIT. With some GM employees charging high-dollar expenses like rent on their cards, many have grabbed huge discounts. So GM now plans to cut back on the advantages the card makes available to employees. Starting in August, 2003, GM will not allow employees to combine the earnings of its card with their employee discount. They will have to choose one of the two discount plans. Instead, they will have another option: adding their employee discount to earnings from a new card -- one that will only earn car-purchase discounts amounting to 1% of their credit-card charges.
So expect a gold rush in the next year as employees grab their last chance at a deep discount. That incentive could move a lot of vehicles at a time when GM is clearly doing all it can to steal sales from chief competitors Ford and DaimlerChrysler. GM gives its employee discount to its workers and retirees as well as their brothers, sisters, wives, parents, children, and in-laws. Employees of GM's dealers and suppliers also are eligible.
Bowen says that about 6 million people are eligible for the employee discount, but do not have a GM card -- yet. The auto maker plans to market to those people aggressively over the next year. The cost to GM Card incentives, adds Bowen, have another benefit: The cost of the incentives to GM is mitigated by earnings from the card. GM has a revenue-sharing deal with Household International, the bank behind the card, although Bowen declined to say just how much GM gets from the card's $20 billion in annual revenue.
INCENTIVE GAME. And make no mistake, the incentive deal is helping plenty on the market-share front. GM is selling about 500,000 cars a year now through the card's incentives. Couple that program with 0% financing and GM is the most aggressive outfit in the market when it comes to spending to gain share. But Ford and DaimlerChrysler aren't far behind. Through June, GM was spending $2,591 per vehicle, versus $2,376 for Ford and $2,515 for Daimler.
All three auto makers see those sums as essential investments to stave of increasing foreign competition in a sputtering economy. Says Burnham Securities analyst David Healy: "Incentives are a permanent part of the landscape." True, but even GM is aware that there is a limit. And in a year, GM's employees will know that even GM can only spend so much to get people driving its cars. By David Welch in Detroit