The success of General Motors' popular employee-pricing program, which boosted sales by 47 percent in June compared with a year ago, is...
DETROIT — The success of General Motors’ popular employee-pricing program, which boosted sales by 47 percent in June compared with a year ago, is forcing rivals Ford and the Chrysler Group to match that offer.
Ford did so yesterday, and Chrysler planned to officially do it today. GM said it was extending until Aug. 1 its program, which allows consumers to buy most 2005 vehicles at the same low price employees pay.
Newly excluded, however, is the sporty Pontiac GTO.
Estimates vary on what the program cost GM last month and what it will cost everyone this month.
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But there is little doubt the promise of low prices and little, if any, haggling, resonated with consumers who have come to expect record bargains at the end of the model year.
But the question the auto industry will face later this year is how much it can cut the incentives when new models are introduced, such as the Ford Fusion sedan and next-generation Chevrolet Suburban, that Ford and GM are counting on to reverse the long-term trend of increasing discounts and falling market share.
“The everyday-low-price strategy should be an easy one for competitors to copy,” John Casesa of brokerage Merrill Lynch said in a note to clients and reporters. “And when they do, we fear that Detroit will have once again simply set a lower price level for all of its products going forward.”
Some Wall Street experts were concerned about side effects of GM’s success. Autodata and its MotorIntelligence.com unit estimate the June deal cost GM $367 more per vehicle than the incentives offered in June 2004.
Put another way, GM’s average per-vehicle incentives rose $450 or about 11 percent in June, compared with May, but June sales were 33 percent higher, said Casesa, who called that “an impressively high return for the month.”
But he warned that GM could face a payback in coming months if demand for its vehicles is exhausted.
“If GM is correct, this program was a financial home run for the company in June, but its full impact will have to take into account the impact on sales and margins in the future,” he said.
A risk that GM — and now Ford and Chrysler — are taking is that consumers will continue to demand progressively more outstanding bargains to consider domestic brands.
That ongoing pricing pressure is what keeps Robert Barry of Goldman Sachs cautious on advising clients to invest in the auto industry.
“GM’s promotion also has significant cons, from pulling demand forward — to associating GM’s brand with low pricing more than with quality,” he said.
Ford Motor is matching GM with what it calls the Ford Family Plan, which extends employee pricing on most 2005 Ford, Lincoln and Mercury models, plus rebates and other promotions, to all U.S. consumers, said spokesman Paul Wood.
The Ford program excludes the Mustang sports cars, the gas-electric hybrid-powered Escape compact SUV and the GT supercar, for which there is no employee discount.
The Chrysler Group’s Gary Dilts, senior vice president for sales, said Friday the Auburn Hills, Mich., unit of DaimlerChrysler would come back with its own plan.