The CEOs of General Motors Corp. and Ford Motor Co. said this week that this summer's employee discount incentives were a big success but U.S. automakers can't continue to offer huge discounts.
"Longer term, it's not healthy for the industry, and frankly it's not sustainable," Ford Chairman and Chief Executive Officer Bill Ford said Thursday after announcing the company's third-quarter earnings.
General Motors Corp. was the first of the Big Three U.S. automakers to let customers pay the employee price for vehicles in June, and the automaker's sales shot up 41 percent that month. Ford and DaimlerChrysler AG's Chrysler Group followed in July. All three ended the programs the week of Sept. 30.
In an interview with The Associated Press, GM Chairman and CEO Rick Wagoner called the employee-discount incentive "an absolute home run" and said it was GM's most successful incentive ever in terms of the number of new customers it brought to the brand, the cost to the company versus the benefits, and the low impact on dealers' profits. GM's Keep America Rolling promotion after the Sept. 11 attacks was the second most successful, Wagoner said.
Wagoner said he didn't regret Keep America Rolling, even though it helped start an incentive war that hurt profits and helped Asian competitors who typically offered lower incentives. Incentives have gone as high as $4,500 per vehicle or more. The average incentive in September was $2,600 per vehicle, but for Asian brands it was $1,000 less, Merrill Lynch auto analyst John Casesa said in a recent report to investors.
"We had a good hand and I think we overplayed it," Wagoner said. "We're not alone in that, by the way, and others are still playing that hand as they surpass us now in incentive programs."
Both Ford and Chrysler outspent GM on incentives in September, which hasn't happened since October 2001, Casesa said.
Bill Ford said it's difficult for U.S. automakers to back away from incentives because they have too many U.S. plants and must get rid of the inventory they produce.
"The issue is structural. We have too much capacity in the U.S., and as long as that happens, someone is going to blink and play the rebate game," he said.
Wagoner agreed that backing away from incentives is difficult.
"The hardest thing you do in this business, if you've got something successful _ whether it's a product, a business strategy or marketing strategy _ is when do you move off success to go to the next paradigm?" he said.
Both Wagoner and Bill Ford expressed confidence about their companies' new sales strategies. Ford and GM have dropped overall prices on vehicles and cut back incentives, and they plan to stress the vehicles' value in advertising rather than big discounts.
Wagoner said employee-pricing taught GM that consumers like transparent, value-based pricing rather than incentives that can make the price difficult to figure out.
"That's an important trend. Now we have to get our whole machine _ from us down to retail _ operating in the most efficient way under that mode, and it's moving, but it's going to take a while," Wagoner said.