Can Gm Sell Cars With A Credit Card?

Once upon a time, carmakers used gorgeous models in slinky gowns to lure customers. Then they turned to cash rebates, and finally to low-rate leases. Now, General Motors Corp. thinks it has a new way to move the metal: Push the plastic.

In a bid to sell more cars, the struggling auto giant on Sept. 9 detailed its plans for a new GM MasterCard. GM is just the latest in a new wave of card issuers, such as General Electric Co., that are using cards as marketing tools for promoting purchases of their products. The GM card allows customers to earn rebates equal to 5% of their charge totals--up to $500 a year over seven years. The rebates can be applied toward the purchase or lease of any new GM car or truck. The carmaker's popular and often hard-to-get Saturn, however, isn't included in the rebate program. GM plans other marketing tie-ins, such as new-car pitches mailed out with monthly credit-card statements.

GM won't issue the card itself. Instead, Household Credit Services, a subsidiary of Prospect Heights (Ill.)-based Household International Inc., will issue and administer it, running the risks and reaping any profits.

INCENTIVE PLAN. The giant auto maker hopes the device will foster brand loyalty and shore up its eroding market share. Analysts think it might work. "Once you get people saving for something," says Maryann Keller, an auto analyst at Furman Selz Inc., "and they see the points piling up on their statement, the incentive is to do it more."

But before all that can happen, GM has to sign up credit-card customers. The GM card's aggressive terms--no annual fee and a floating interest rate currently set at 16.4%, a full point below what the top 100 issuers charge--should help. By contrast, GE's MasterCard, which is luring customers with rebates and discounts on retail purchases, carries an 18.4% interest rate and a $25 annual fee.

GM also has lined up some big corporate partners. The GM rebates pile up twice as fast on purchases from MCI, Marriott, and Avis. And finally, like American Telephone & Telegraph Co., whose 2 1/2-year-old card now ranks eighth nationally, GM has the clout of a well-known brand name. "GM is one of a handful of companies that has the image awareness to do something like this," says David Robertson, president of The Nilson Report, a Santa Monica (Calif.) credit-card industry newsletter.

Even so, the new card isn't likely to rival AT&T's success. Competition, especially from nonbank issuers, has zoomed since AT&T entered the fray. And AT&T is expected to retaliate soon by dropping its rates below 16%.

Moreover, GM's rebate program must compete with cards offering goodies such as airline tickets, merchandise, or cash rebates. Some cardholders will no doubt prefer to ring up charges on other cards that give them more flexibility in how they use their rebates. Ford Motor Co. and its financing unit, The Associates, for example, introduced a Ford Visa and MasterCard last June. Although Ford's introductory rate of 15.9% rises to 19.8% after six months, it pays an annual cash rebate of up to 1.5% of the total charged. Associates Chairman Reece A. Overcash Jr. says Ford has no plans to change its card in response to GM's offering. When it comes to card rebates, Overcash says "cash is king."

PAYOFF. Still, there could be a big payoff if enough cardholders buy GM cars. Those most likely to take the bait: GM loyalists, who can start amassing a discount, knowing they'll be buying a Chevy or Oldsmobile in a few years. Just keeping its current customers--and its 35.2% share of the light-vehicle market--is critical for the hard-hit company.

GM needs the goods along with the gimmick, though. The card probably won't win over devoted import buyers or comparison-shoppers. "GM has to have a better product," says analyst Keller. "A card alone is probably not going to convert somebody from a Ford Taurus to a Chevy Lumina."

But while new models take years to develop, GM plans to push the card heavily. The card's estimated $100 million-plus launch includes what GM's North American advertising chief Philip Guarascio calls "a carpet-bombing approach," a blitz of TV ads from early morning through prime time. GM is also mailing preapproved card applications to 30 million households.

To get the green light for that kind of spending, Guarascio's team had to win the approval of GM's board and the general managers of all its car and truck divisions. These days, when GM is pinching every penny, the board's approval means that a lot of people at GM have faith in the power of plastic.

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