GM, Ford cut prices as discount war continues

General Motors Corp. ended its employee-discount program Monday but is offering lower prices to keep up booming summer sales.Douglas C. Pizac / AP
/ Source: The Associated Press

General Motors Corp. dropped its popular employee-discount plan Monday in a signal that the era of big incentives could be ending. Ford Motor Co. said it will continue employee pricing for another month but also will try to cut back on incentives for 2006 models.

GM was the first to allow customers to buy 2005 vehicles at the employee rate in June. The automaker’s sales jumped 41 percent that month, and Ford and Chrysler followed with their own employee pricing plans in July. All of the plans were set to expire Monday.

Ford, however, said it’s extending employee pricing through Sept. 6 for Ford, Lincoln and Mercury vehicles. It’s also adding some 2006 models to the discount plan, including the Ford Escape, Ford Expedition, Ford Econoline and Lincoln Navigator, all of which saw sales fall in the first six months of this year. The Escape, Expedition and Navigator are sport utility vehicles; the Econoline is a van.

DaimlerChrysler AG’s Chrysler Group said it would announce Tuesday whether it was continuing its employee-pricing plan.

GM, the world’s largest automaker, dropped employee-pricing but said it would try to lure buyers with lower prices on its 2006 models. GM is hoping to wean customers off incentives and establish its brands as a good value. Such moves to back off incentives in the past couple of years have been largely unsuccessful.

“Regardless of what any of our competitors are doing, we think this is the right play for us,” said Brent Dewar, GM North America’s vice president of marketing and advertising.

Price cuts
GM is lowering the prices on 30 of its 76 models and adding features to other models to make them more competitive. Under the new pricing strategy, the base price of the Chevrolet Malibu, for example, is $17,990, or $1,835 below the 2005 model, while the base price of the Saturn Ion sedan is $12,490, or $2,455 lower than the 2005 model.

Buick and Hummer vehicles will get a four-year, 50,000-mile warranty previously reserved for GM’s luxury Cadillac and Saab brands.

Ford said it also will lower prices on most of its 2006 Ford, Lincoln and Mercury models. The Ford Explorer has new content and better fuel economy but will be $1,750 less than the 2005 model, the company said. For the first time, the Ford Focus will be under $14,000; the 2006 Focus starts at $13,995, $610 less than the 2005 Focus.

GM and Ford said Monday that customers have had a hard time finding actual vehicle prices on the Internet because base prices shown don’t include available incentives. Ford said 70 percent of new vehicle buyers now use the Internet to research vehicles, but just 15 percent click far enough to see what incentives are available.

Dewar said GM wants to use incentives more sparingly, targeting them at specific vehicles rather than showering them on every vehicle.

“Incentives will still play a big role, but we want to make sure we’re closer to the transaction price,” Dewar said.

According to research firm Autodata Corp., GM spent an average of $4,458 per vehicle on incentives in June, higher than any other automaker. Toyota Motor Corp. spent $1,090, the lowest of any automaker.

Some analysts have questioned whether GM’s strategy will be successful, saying the company has conditioned customers to expect incentives since introducing zero-percent financing plans in the wake of the 2001 terrorist attacks.

“Because they have been taught to expect these incentives and rebates, domestic buyers often sit on their checkbooks until the incentives arrive and then they flock to the showrooms.” said Jack Nerad, editorial director and market analyst for Kelley Blue Book, a vehicle research site.

But Rebecca Lindland, a senior analyst for the consulting firm Global Insight Inc., predicted consumers will like the new pricing strategy because they don’t like wading through incentives and trying to find a good deal.

“It would become a much cleaner process for the consumer if they make the sticker prices closer to what the consumer’s going to pay,” Lindland said. “Nowadays, people are so busy and aggressive. They don’t want to take the time it takes to really haggle.”

Lindland said consumers liked the employee-pricing programs because they didn’t have to haggle over the price. They also let consumers in on one of the perks of working for an automaker. Although GM’s plan is ending for most consumers, it will continue for the roughly 215,000 employees of GM North America and its financial arm, GMAC, as well as thousands of employees at Delphi Corp., GM’s former parts division.