There seemed little chance U.S. car makers could look any worse, but moves like General Motors’ announcement Thursday that it will cut production this summer risk scaring off remaining potential customers and eroding decades of brand loyalty.
When General Motors said it plans to idle 13 factories in the U.S. and Mexico for two months to reduce its inventory, it renewed fear that longtime customers will abandon American car companies.
Consumers tend to be staunchly loyal when it comes to their auto brands, but bad news surrounding a brand and concerns about a company’s future can eventually tip the balance, said Deborah Mitchell, a marketing professor at Wisconsin School of Business.
“They feel sick. They’re heartbroken. But they’re not stupid,” Mitchell said.
Addie Kidd, who planned to buy a used car before interest rates dropped, is trying to keep an open mind and consider new American cars as she makes her purchase, probably next week.
But the 28-year-old from Wauwatosa, Wis., doesn’t like their design and felt the risk of buying from a company that could vanish was too great.
“I would want something that was going to be around for the long haul, and a company that would back it up too,” said Kidd, a magazine editor. “So if they’re not going to be there, it’s concerning.”
General Motors is trying to allay consumer fears — not just about whether it will be around to honor warranties — but to coax cash-strapped consumers to buy new cars now. It’s in the midst of a monthlong GM Total Confidence marketing campaign — which includes protections for car buyers if they lose their jobs or if the value of their vehicle slips.
Spokesman John M. McDonald said the promotion — the first of its kind for the maker of brands like Buick and Chevrolet — is bringing more traffic to dealerships. April sales are trending better than the company predicted, and GM may extend the deal, which ends next week.
He downplayed concern that consumers would shy away from the brand based on plant closures.
“I don’t know any consumer who wouldn’t buy a computer because a computer plant was reducing production,” he said.
But Mitchell said the production halt could be the final straw in a large stack of bad news consumers are hearing about the venerable automaker. The news is chipping away at the brand’s standing, said Mitchell, who used to consult for GM.
Promises — including warranties, OnStar safety monitoring and payment protections for customers who lose their jobs — don’t address the looming bankruptcy or other issues facing the automaker, she said.
“GM is saying, ’We’re going to take care of you,’ but the consumer is wondering if it will be around to take care of itself,” she said.
GM is deeply troubled and relying on $13.4 billion in government loans as it faces a June 1 deadline to restructure and cut labor costs and debt. Its CEO has said the company will file for Chapter 11 bankruptcy protection if it misses the deadline.
Some experts said car makers may have no choice but to offer still more incentives beyond thousands of dollars in price cuts and rebates and guarantees. But Jesse Toprak, executive director of industry analysis for the auto Web site Edmunds.com, said GM may not want to offer more because they dilute the brand.
Incentives reached a record across the industry in March — an average of $3,153 per car purchased, according to data from Edmunds.com. For GM, they were at an all-time high of $4,772. Toprak said that helps bring in traffic and potential sales, but the costs of those incentives can be negative for the brand later on.
“What happens with consumers now is that you’re selling them the incentive, not the car,” Toprak said. “And that’s not an optimal way for an auto maker to operate for a long time.”
Besides, consumers expect incentives all the time now, said David Cole, chairman of the Center for Automotive Research. So giving them a year-end rebate is nothing new.
“We’ve built so much overcapacity that it turned it into a true buyer’s market, and literally incentives became a way of life,” he said, adding that cutting inventory will give sellers more power in the market.
The incentives, low financing and a longer warranty are cementing Jessica Cosby’s interest in a GM purchase. The 33-year-old massage school student, who wants to replace her 1998 Pontiac Vibe, a GM vehicle, with another Vibe. After test driving a used Chevrolet Equinox Thursday at a dealership in Wausau, Wis., she said bankruptcy won’t deter her.
At the Community Chevrolet lot in Burbank, Calif., Thursday, Phil Brierley, a 33-year-old entertainment cameraman from Santa Monica, said his confidence in GM was not shaken by the temporary plant shutdowns.
“If GM has a glut of cars that they can’t sell, then they can’t sell them at premium value,” he said. Brierley, who said he’s owned “more Pontiacs, Trans Ams and Firebirds” than he can count, plans to return when the Camaro he wants is in stock.
Toprak said he expected General Motors to continue its Total Confidence plan since it costs relatively little — he estimates $300 a car — and helps assuage consumer fears. The third-party program is actually must cheaper than a typical discount or rebate or curate financing, he noted.
But what’s needed most is clarity about the future of the business, which should come in June.
Until then, General Motors must go after its remaining loyal customers any way it can, said Mitchell, adding that one way would be to offer more promotions and generate more positive news coverage.
“Within autos, once the loyalty is broken, it’s difficult if not impossible to get it back,” she said.