How Far Can Rebates Power GM?
General Motors sales and marketing chief William J. Lovejoy can finally take down from his office door a collection of news clips chronicling the auto maker's decade-long loss of market share. In each of the stories, Lovejoy is quoted making Lee Ioccoca-like claims that GM would reverse the slump in 2001.
Let the record show: He was right. A strong comeback in the truck business and a sustained incentive campaign pushed GM's market share up a slim 0.3 percentage points, to 28.3%, in 2001. Says Lovejoy: "I said we'd gain share [in 2001], and we did."
Now, GM needs an encore. Stabilizing share won't be enough in 2002. If the car and light-truck sales drop more than 10% this year to 15 million units, as many predict, GM will be hard pressed to make money (see BW Online, 12/10/01, "What GM Needs to Keep Rolling"). To keep new buyers coming to dealerships, the No. 1 carmaker is counting on continuing its surge in the pickup truck and sport-utility vehicle markets -- and its ability to outspend rivals on rebates.
Small wonder, then, that on Jan. 3, GM announced it would offer $2,002 rebates on all GM cars and trucks. That deal follows the very successful 0% financing campaign that kept auto sales brisk from late September through the end of 2001 and helped GM steal share from weaker competitors Ford and DaimlerChrysler. "Ford and Daimler have no choice but to follow this program," says Art Spinella, analyst with CNW Marketing/Research, an auto industry research outfit in Bandon, Ore.
That would play right into GM's hands. Both Ford and Daimler's U.S.-based Chrysler Group lost money in 2001. So GM knows that continued rebate spending will put pressure on the other two carmakers to either sink further into the red or cede buyers, says Sanford C. Bernstein Co. analyst Scott Hill. If they don't cede share, Hill notes, Ford and Daimler may spend too much on incentives and later be forced to cut new-vehicle development programs.
Both companies have said they're weighing their options but trying to avoid following GM's generous $2,002 rebates. Concedes Ford Division General Manager James O'Connor: "It's a fairly rich program."
ONE CLEAR MESSAGE.
Chrysler will likely choose a different strategy (see BW, 1/14/02, "Daimler and Chrysler Have a Baby"). It will try to keep sales up by offering extended warranties, low-interest car loans, and rebates, rather than one national cash-back deal. Gary Dilts, Chrysler Group's senior sales vice-president, says the company will continue its 7-year, 100,000-mile warranty program at least through March and offer a mixed bag of other deals. Says Dilts: "We don't think the market is that single-minded."
GM sees things differently. It gained at least half a percentage point of market share in each of the four months it ran its 0% financing program. Lovejoy thinks car buyers liked the one-size-fits-all national program. Prior to the 0% deal, GM had hundreds of incentive programs for each of its models. Those incentive offers -- whether low-interest loans or rebates -- often varied greatly by region.
Trouble was, the various incentives were so complicated that even dealers needed a multimillion-dollar computer system to track rebates for every vehicle and in every Zip code. Worse, with so many plans, it was nearly impossible to generate any kind of marketing buzz while advertising them all. "Consumers need to know what the deal is," Lovejoy says. "You need to get the message out to all 7,500 dealers in a way they can easily understand."
Analysts agree that GM's simplified marketing program looks like a winner. But that doesn't mean gaining market share will be a slam dunk. GM's passenger-car business has been slumping mightily. Even though the company gained share in the U.S., its stake of the passenger-car market fell 3.5 percentage points, to 22.3%, in 2001. GM has only a few low-volume new cars coming out this year. Says GM's chief market analyst Paul Ballew: "We have challenges on the car side of the business." At least it has its truck business to fall back on. Its stake of the large-pickup market rose 4 percentage points, to 42%, and GM's share of the large SUV business rose 5.5 percentage points, to a generous 66%. That'll will keep the company in the money for a while.
But with its car business weak, and competitors like Ford, Toyota, and Honda coming out with new SUVs, GM will have to keep spending to stay on top.
By David Welch in Detroit
Edited by Douglas Harbrecht