Fast Company

When Does It End? GM & Ford Offer More Incentives

The vicious incentive discounting battle continues in the auto industry. Once again, General Motors and Ford Motor are relying on incentives to boost lackluster vehicle sales and to regain ground lost to Asian rivals.

GM increased rebates on sports utility vehicles to $5,000 and to $4,000 for most 2004 cars, while Ford raised its offer by $1,000 on some SUVs, including the Explorer, the companies announced in statements.

"Consumers have more reasons than ever to choose a great new GM vehicle," John Smith, group vice president of GM North America Vehicle Sales, said in a statement. True. The rebates are good news for the consumers, yet another blow to the car manufacturers.

The Big Three -- Ford, GM and Chrysler, a unit of DaimlerChrysler --- have yet to find a way to wean the American shopper off of incentives and to take advantage of an economy that's on the mend, recovering in consumer confidence and slightly higher interest rates. Consumers are accustomed to the significant deals and don't seem willing to pay the extra money for their U.S.A.-made car. Data backs this point.

In June, light vehicle sales fell to their lowest point in nearly six years. Incentives for the auto industry declined 1.1 percent in June to $3,667 from $3,703 in May, according a CIBC World Markets analyst report, citing CNW Marketing Research. So today's news on the incentives isn't a surprise.

Even so, Ford, GM and Chrysler executives must explain to soon-to-be inquiring investors the reasons behind disappointing earnings results.

The pricing battle began after Sept. 11, 2001. U.S. carmakers resorted to offering sizable cash rebates, interest-free financing and slashing in some cases, the sticker price of the vehicles to lure buyers amid a sluggish economy. Sales rose as people rushed to their neighborhood dealership; however, the deals squeezed profit margins at the automakers.

And to add to their woes, Asian competitors like Nissan and Toyota were enjoying high market share gains because the companies offered trendier, more stylish cars packed with features such as compact disc players for about the same price or less than their U.S. counterparts.

So what's the solution? How do automakers sell more cars without essentially greasing the palms of consumers with incentives? What are your thoughts on this issue? Can this cycle be broken? For now, you might as well visit your local Ford or GM dealer and take advantage.

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2 Comments

  • M. Russell Stewart

    It is intriguing to me that the Big Three have yet to see that giving incentives to boost sales is like heroin (My brother knows about this all too well, unfortunately.) - You need more and more to feel good about buying it, and eventually you end up hating yourself for falling into its trap. I'm not surprised that Detroit has had to continually increase the quantity and level of incentivication. By offering them to consumers in such abundance, they are saying to us that the cars they make really aren't worth as much as the sticker says. Even if American autos are "better" in some way than foreign autos, no one's going to believe it because Detroit is practically giving them away.

    Seth Godin makes a great point in his HUGELY mind-warping book, "Free Prize Inside." He tells how Land Rover's sales have skyrocketed, while JD Powers rates them near the bottom of the list for Customer Satisfaction. Land Rover hasn't built the best SUVs on the road, they build the SUVs that get people talking, drooling, and loving their rides. There are a very few American cars and trucks that have this kind of pull - The Corvette comes to mind - However, most all the others will never have this kind of loyalty because GM, Ford, and Chrysler have yet to give us a reason, besides the incentive program, to buy their products. The day they can give people like Mr. Bines something to talk about, something truly "edgy" as Seth Godin touts, look out Japan!

  • Geoff Bines

    If Ford or GM (Chrysler isn't anywhere near the radar since the merger) actually made a product I wanted, they would get my money. Honda and Toyota have won immense respect from me over the last thirteen years. From my 1990 Tercel, which went 100,000 miles without a single point of failure, and 30,000 more miles without an oil change, to a Civic that was put together with all-honda frankenstein parts and worked perfectly after being totaled, to my brand new Acura TSX, which I expect no less, Detroit has nothing for me that isn't butt-ugly or overpriced. I want the US auto industry to survive, but the Japanese have earned my dollars.