GM pricing plan starting to work
Sales up in '06 despite less discounting
BY SARAH A. WEBSTER
FREE PRESS BUSINESS WRITER
March 25, 2006
A day before General Motors Corp. is expected to cut hundreds of salaried positions in metro Detroit, the world's largest automaker will deliver good news about the company's new pricing strategy.
GM has scheduled a meeting with the news media on Monday to champion its months-old marketing effort -- to price new cars and trucks closer to the amount at which they actually sell. It's a departure from the tradition of sticking price tags on cars that are often thousands of dollars more than what consumers pay after rebates and dealer-lot haggling, which can frustrate car shoppers.
The strategy eliminates GM's need to heavily discount its products, a move that erodes brand image and eats into profits. And it appears to be giving sales a healthy boost -- at least for the first two months this year.
But the good news will come too late for hundreds of GM's salaried workers who are expecting to lose their jobs on Tuesday and in cutbacks expected later this year.
Still, the U.S. market is showing important, positive signs for downtrodden GM, which posted a stunning $10.6-billion loss last year and is cutting costs and taking other big restructuring steps to return to profitability.
GM's sales are up 1.5% through February this year, compared with the same period a year ago. But that only tells part of the story.
A variety of automotive marketing experts are excitedly reporting that GM's new pricing plan has been effective.
"It is working," Art Spinella, president of CNW Marketing Research in Bandon, Ore., said in an interview earlier this month. "It's absolutely essential that they keep it up. We're seeing it on the floor traffic."
According to the consumer Web site Edmunds.com, which collects data from auto dealers across the country, there are positive, measurable signs. The most recent data show:
# Among domestic automakers, GM is now offering the lowest incentives, an average of $2,638 per vehicle.
# GM is turning over its cars and trucks faster than any other domestic automaker. A new GM car or truck is only in inventory for about 63 days before being sold, compared with 70 at Ford Motor Co. and 82 at Chrysler Group. Most automakers aim for 60 days or less, a number that shows the automaker is being efficient and producing about as many vehicles as the market wants. Toyota Motor Corp.'s days-to-turn is 30 days. But GM is showing improvement from its 76 days-to-turn a vehicle last year.
# GM is getting consumers to pay more for its vehicles, despite cutting prices. The automaker's net price, or the actual amount it has been able to get consumers to pay for its new cars and trucks, was up $240 in February, or 0.9%, to an average of $25,643. Neither Chrysler nor Ford was able to get consumers to pay that much for vehicles, and neither showed so strong an improvement.
Waiting for bad news
Meanwhile, engineers at the Warren Technical Center say they believe GM will soon outline the details about plans to cut their jobs. About a third of GM's 36,000 salaried workers in the United States are based at the site, where the bulk of GM's engineering work is done in North America. And the automaker already has said it plans to cut salaried staffing levels by 7% in the United States this year.
It's clear some preparations have been taking place in Warren and at the company's proving grounds in Milford. GM's human resources office has booked conference rooms for Tuesday. Employees have been told to report to work. Some workers were told to have their company-issued vehicles on hand. And security reportedly has been beefed up.
GM would not comment on what employees are now calling Black Tuesday.
"We want to communicate with our employees first," said GM spokesman Robert Herta.
According to GM's existing severance package, employees who have worked at GM for at least a year will be paid one month of their salary for each year of employment, up to 15 months. They will maintain their health insurance for that period and also receive three months of outplacement assistance.
