By all indications, General Motors Corp.'s employee-discount-for-everyone sale is a blockbuster that will deliver the ailing automaker's best sales month in nearly four years.

With dealers reporting blistering showroom traffic, some analysts predict that GM's June sales will be up 30 percent over June 2004 and its share of the U.S. auto market could rise to 30 percent.

What's more, GM is poised to shatter its all-time monthly record for light truck sales, which include profitable pickups, SUVs and minivans, the company's top sales analyst told The Detroit News.

The red-hot sales pace comes as GM is reeling from market share losses, tense labor negotiations and deepening financial problems.

But while the promotion extending GM employee discounts to all consumers from June 1 through July 5 has sparked demand, it doesn't come without risk. Some analysts say GM is pulling ahead sales from future months and could pay the price later. And the offer could have a negative impact on GM's brand image and residual values.

For now at least, GM and its dealers are elated by the surge in foot traffic and sales.

"I'm seeing a very big increase, about 35 to 40 percent," said Mickey Wheldon, Internet sales manager at Tustin Pontiac-Buick-GMC in Tustin, Calif. "I'm starting to run out of inventory."

Even in Metro Detroit, where employee discounts are coin of the realm, showroom traffic has risen.

"It's totally busy," said Rochester Hills Pontiac-Buick-GMC dealer Russ Shelton. "There are people all over the place."

Alissa Hubbarth, 23, of Rochester Hills was among those who braved sweltering heat Monday to browse the lot at Shelton's dealership.

The recent graduate of Eastern Michigan University put her name on the list for a 2006 Pontiac Solstice.

The car isn't included in the current sale, but the promotion was enough to bring Hubbarth into Shelton's showroom. "It's too good to be true," Hubbarth said. "I wouldn't be down with it if it were not for the great deal."

GM has seen its U.S. market share ebb to 25.4 percent through May from 27 percent last year.

Earlier this month, Chairman and CEO Rick Wagoner announced the automaker will cut at least 25,000 hourly jobs through 2008. GM also is in talks with the United Auto Workers in hopes of lowering its $5.6 billion annual health care bill.

Desperate to clear 1.2 million unsold 2005 vehicles from dealer lots before the end of the model year and convince non-GM customers to give its products a try, the automaker is allowing all consumers to pay what GM employees pay -- about 3 percent to 4 percent below dealer invoice, on top of existing rebates.

In a note to investors Friday, Merrill Lynch analyst John Casesa predicted GM's June sales will be almost 30 percent higher than June 2004 -- "the highest unit level since October 2001 and a market share of about 30 percent."

Casesa expects Ford and Chrysler to post 5 percent sales increases in June. Foreign automakes should gain about 6 percent, he said.

Edmunds.com, an online buying guide, expects GM to be the only automaker to gain market share over June 2004.

Paul Ballew, GM executive director of global market and industry analysis, declined to estimate how much GM's sales will climb in June, but said the automaker would have its best month since it launched the "Keep America Rolling" no-interest financing promotion after Sept. 11, 2001. "We will be up significantly," he said.

Merrill Lynch's Casesa said the momentum cannot be sustained, writing "we think GM will give back most, if not all, of the market share gains in the next few months."

He also is concerned this latest round of discounting will prevent vehicles from holding their value, potentially costing consumers hundreds or thousands of dollars at trade-in time.

But the head of Automotive Lease Guide, which sets vehicle residual values, isn't as concerned, pointing out this latest promotion is merely a bridge to GM's new pricing policy for 2006 model vehicles, called "value pricing," that will rely less on cash rebates and more on lowering sticker prices.

"If you're successful at normalizing incentives, this actually will eliminate (residual value) volatility," said ALG president Raj Sundaram.

There's evidence the current sale is also helping GM win over customers from other brands, a goal that often has eluded the automaker as it fights to overcome a past fraught with quality and style deficiencies.

"Our conquest rate is up significantly to one of its highest levels," Ballew said. "What's driving it is exceptionally strong truck sales. We're probably going to set an all-time industry record on monthly truck sales."

Truck sales for any automaker represent high profits, and coming off a $1.1 billion first-quarter loss, GM needs a boost from its biggest cash cows. As recently as three years ago, GM controlled 60 percent of the light truck market, but that's dwindled to about 35 percent, according to Edmunds.com.

At Suburban Buick-Cadillac-Hummer in Troy, which sells a big share of its vehicles to GM employees, inquiries are coming in from consumers who would otherwise not consider a GM product.

"Certainly people who are not typically GM customers, where GM models were not on their list of intentions, are showing their interest," said sales manager Ed Springs.

If the predictions hold up, GM will record its first monthly market share gain since September 2004, when it offered 72-month, zero-interest financing over the course of 72 hours at the end of the month.

Like that promotion, the current program is easy for consumers to grasp and has been marketed with a saturation advertising campaign.

The latest ads feature GM employees from plants and offices around the country.

"This is probably the best executed promotion in my memory," said Paul Rubin, a White Bear Lake, Minn., Pontiac-Buick-GMC dealer who heads GM's dealer council. "They hit a chord on the advertising. It's the first time they put a human face on GM."

Edmunds.com analyst Jesse Toprak also credits the no-haggle aspect.

"People do not have to negotiate," Toprak said. "The car buying process is so stressful, but there are no worries, the price is set."

The employee discount can mean saving of nearly $10,000 on some GM vehicles, but the overall cost of promotion to the automaker may not be as high as some thought.

According to Dow Jones, Autodata estimates that GM will spend $4,300 per vehicle on incentives in June, up from about $4,000 in May.

GM vice president of marketing and advertising Mark LaNeve indicated last week the sale could be extended but no announcement has been made.

The question is what GM does for an encore? Ballew says the employee discount sale is a temporary promotion until the automaker moves toward what it calls value pricing, which means lowering the sticker price on a vehicle and cutting back on rebates.

GM has already told dealers it plans to lower the sticker price on many 2006 models.

The success of the employee discount has proven that "when you offer great products and good value proposition, we can still drive profit and drive sales."

http://www.detnews.com/2005/autosins...A01-230561.htm

 

Makes sense to me. Drop the prices enough to reflect the actual value of the cars you're selling, and people will buy them. I think GM's plan of lowering the sticker price next year, even though the car won't actually be cheaper than with all the rebates GM has been offering, will help sell more cars and get more people into the dealership.

There's only one car in this employee discount I'd actually consider a "deal" however, and that's the Saab 9-2X I've seriously recommended the Saab 9-2X to three different people in the last month, and one of them even bought it. If this deal had been going on back in January/February while I was car shopping I might have ended up in one myself. It's a shame that the only GM vehicle I'd be willing to buy (aside fromt the Vette, which isn't included in this deal) is a mildly reworked Japanese model.