CHICAGO – Like a smoker who vows to kick the habit only to light up again, General Motors this week launched a year-end clearance sale that emphasizes price discounts up to nearly $9,000 on some 2006 models.
GM’s “Red Tag Event,” which also includes some 2005 models, comes six weeks after the automaker ended its successful employee pricing program and switched to a “total value promise” that was supposed to reduce its reliance on costly incentives.
Without deep discounts, traffic dried up at GM showrooms in October, and sales plunged 26 percent from a year earlier.
“They have no choice. They have to do something,” said Art Spinella, president of CNW Marketing Research, Bandon, Ore., which studies the auto industry. “People like their products but they’re not excited about them. If you lack something that’s distinctive and new, you have to do the “big deal.”‘
Ford, Chrysler and Asian carmakers will be forced to offer deals to counter GM, said analyst Rebecca Lindland of research firm Global Insight. She added that the Asian brands are more likely to offer less visible dealer incentives than consumer-direct offers.
Spinella thinks GM faces bigger issues in the boardroom than in the showroom. Investors, he said, have lost confidence in Rick Wagoner, chairman and chief executive of the world’s largest automaker.
“There is almost a Wall Street drumbeat that says Wagoner has to get out of there,” said Spinella, whose research firm has several Wall Street clients. “It’s really a confidence issue. A change of leadership would at least signal a new direction for the company, and Wall Street will turn around in an instant if it’s a person they have some confidence in.”
Tom Kowaleski, GM’s vice president of communications, said the company had no response to Spinella’s comments.
“(Wagoner) is spending his time running the company and getting things in place for the turnaround,” Kowaleski said.
GM has maintained that it has not considered bankruptcy and that GM’s board supports Wagoner, CEO since 2000 and chairman since 2003.
GM’s stock has dropped 21 percent in the last month as investors fret over its mounting problems.
GM has lost money the last four quarters and is $3.8 billion in the red this year. Last week, GM said it would lower its 2001 earnings by $300 million to $400 million to correct an accounting error, and it faces potential pension liabilities of up to $11 billion from the bankruptcy of parts supplier Delphi Corp., which GM spun off in 1999.
GM is losing market share in the United States to Asian rivals and has announced plans to close several plants and cut 25,000 union workers in the next few years.
That has fueled speculation that GM may have to file for bankruptcy. In a note to investors last week, Bank of America Securities analyst Ronald Tadross called it “inevitable.”
GM has said its turnaround would be led by products such as the Chevrolet Cobalt, Buick LaCrosse and a family of new full-size sport-utility vehicles due early next year, but Spinella says the company still lacks mass-market models that “capture someone’s imagination.
GM’s market share rose to 32.8 percent in June, the first month of the employee discount, but fell to 22 percent in October, after the sale ended.
Spokeswoman Deborah Silverman said the red-tag event does not mean GM has abandoned value pricing, which emphasizes vehicle features and quality.
“We never said we would stop doing incentives. We said we would use them tactically, and that’s what this is, a tactical program,” she said. “Just about every manufacturer is going to have a year-end clearance event, and we have to be competitive.”
The sale runs through Jan. 3 and covers most 2005 and 2006 Chevrolet, Buick, Pontiac and GMC models.
Red tags on the vehicle reflect rebates and other discounts and say: “The price on our tag is the price you pay. Not a penny more.”
GM used a similar slogan for the employee discounts.
Discounts vary widely by model. The highest are on big SUVs such as the Chevrolet Tahoe, whose sales have been crippled by high gas prices.
According to GM’s Web site, a 2006 Tahoe LT with a sticker price of $46,265 will sell for $37,306.53 in the sale, a discount of nearly $9,000. A 2005 Tahoe LT will sell for $33,969.96, an $11,045 discount, though 2005 models may be hard to find.
Red tag prices on other 2006 models aren’t as generous. A LaCrosse with a sticker price of $29,095 will sell for $25,662.10, and a Cobalt with a $18,990 window sticker will sell for $17,192.89.
Analyst Lindland said GM may have picked the wrong time to try to kick its incentive habit.
“Everyone who wants a new vehicle probably already has it,” she said, and consumers face other concerns that could dampen car sales. “They’re not only worried about the price of gas, but also how much it is going to cost to heat their house this winter.”
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