GM gets back in the discount game with 'Red Tag' pricing

Tuesday, November 15, 2005

DETROIT -- General Motors Corp. is back in the discount game, and U.S. rivals Ford Motor Co. and the Chrysler Group could join in soon.

The world's largest automaker announced Monday it's offering "Red Tag" prices through Jan. 3 on most Buick, Chevrolet, GMC and Pontiac vehicles from the 2005 and 2006 model years. Under the program, dealers will post fixed maximum prices on the vehicles. GM said the deals generally won't be as good as they were this summer, when consumers could pay the employee price. But the automaker hopes the program will lure customers who traditionally buy vehicles over the holidays.

"The prices are probably on balance a little higher than with the employee discount, but they're still very, very competitive," GM spokeswoman Deborah Silverman said.

Some vehicles will be discounted $4,000 or more under the "Red Tag" deal, Silverman said. A 2006 Buick LaCrosse will sell for $23,595, $3,020 less than the retail price, while a 2006 four-wheel-drive GMC Envoy will sell for $26,938, or $4,612 off the retail price.

Ford spokesman Jim Cain said Ford will consider its competitive position and decide soon whether to match GM's offer. Ford already has a zero-percent financing deal for some 2005 trucks and sport utility vehicles and a $1,000 discount on the 2006 Lincoln LS sedan.

Chrysler spokesman Kevin McCormick said the division has a new discount program in the works and could announce details later this week. Chrysler already is offering $1,000 on all 2005 and 2006 vehicles.

Chrysler is part of DaimlerChrysler AG.

When its wildly popular employee-discount program ended in September, GM vowed to cut back on incentives in favor of lower overall prices and ads that stress the vehicles' value.

In October, GM led the major U.S. and Asian automakers in pulling back spending, with a 24 percent decline in incentives, according to Autodata Corp. Chrysler had the highest incentives of any major automaker at $3,075 per vehicle; Honda's were the lowest, at $618. But consumers didn't respond, and GM's sales plummeted 23 percent in October.

Silverman said the "Red Tag" discount is consistent with GM's strategy, called value-pricing, because it posts one clear price. She said the employee-discount program taught the company that consumers liked no-haggle buying.

Rebecca Lindland, an auto analyst with the consulting firm Global Insight, said GM's decision to offer the discount isn't surprising but reinforces how tough it will be for the automaker to implement value-pricing. Lindland said she's not sure discounts can overcome consumers' concerns about heating bills and their hangover after a summer of heavily promoted discounts.

"The consumer is just really tired. Everyone that wanted a vehicle has one," Lindland said.

Most automakers offer discounts over the holidays, but GM announced its program several weeks earlier than usual.

John Rogin, who owns GM dealerships in Michigan and Ohio, said the earlier date helps dealers make sure they have enough vehicles in stock. It also could lure buyers while the weather is still mild, Rogin said.

"We'd be crazy not to be involved at this time of year with some type of promotion," Rogin said. "Normally that promotion doesn't come out until later, but why not push the market?"

But Art Spinella, president of CNW Marketing Research Inc., said the discount also could be an attempt to boost GM's November sales, which have been lackluster so far.

"They have to do something just for survival," Spinella said. GM's U.S. market share fell by nearly 3 percent in the first nine months of this year, leading to production cuts and losses of more than $3 billion.

Spinella said GM needs to have some patience if it wants the value-pricing strategy to work in the long run. It took Toyota Motor Corp. 20 years to be considered a value-pricing leader, Spinella said.

"You never hear about Toyota doing blue-light specials," Spinella said. "From a strategic standpoint, value-pricing is really perfect, but it can take years to register."

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