Skip navigation

Production Cuts Signal New Phase for Big Three

GM touched off the industry's 4-year rebate frenzy with its "Keep America Rolling" program in 2001, but it's beginning to look like the incentive era finally is coming to an end.

It may be too early to declare victory, but it looks like General Motors has secured the high ground in the new-vehicle pricing battle.

A year ago, the auto maker took a 180-degree turn, ratcheting down a marketing strategy heavily reliant on cash incentives in favor of a “value pricing” scheme that positions new-car stickers much closer to what customers are willing to pay.

The drastic move was made in part because it was becoming harder and harder to draw in big numbers of U.S. consumers with rebates – then averaging nearly $4,000 and climbing.

GM also found itself disadvantaged when it came to savvy Internet shoppers. With stickers inflated to cover the cost of rebates, GM vehicles fared poorly against the competition in head-to-head pricing comparisons on the Web.

In addition, the heavy discounting rapidly was eroding the value of GM’s brands.

The decision to switch gears and drastically dial down incentives was met with skepticism. Many believed GM would jump back into the discount game as soon as its Detroit-based rivals began stepping up the rebate pressure.

But for the most part, that hasn’t happened. Chrysler upped the ante earlier this summer with some of the industry’s highest incentives, but that didn’t prevent it from losing nearly a point of market share, nor did it knock GM off its path.

Now indications are both Ford and Chrysler may be ready to submit to the No.1 auto maker’s will.

In mid-August, Ford took the knife to its fourth-quarter production schedules, slashing planned output 21% to a more than 20-year low, a clear sign it too is ready to back off rebates and allow demand to dictate output. A subsequently launched new round of sales spiffs marks Ford’s last big incentives push as it looks to clear out ’06 inventory and begin the new model year with a clean slate.

Chrysler says it also will cut fourth-quarter production, rather than rely on rebates to trim bloated inventories that topped 90 days’ supply on July 31. Another sign of Chrysler’s philosophical shift is the new Dodge Nitro SUV, launching with an aggressive $19,885 base price that leaves less room for discounting.

In a recent presentation to securities analysts, GM says its “price repositioning” strategy is paying dividends. Although still well above the industry average of $2,372, the auto maker has managed to cut incentive spending nearly $950 per vehicle from year-ago.

Residuals for its cars – what they’re worth after three years on the road – are rising, meaning the market value of GM’s brands is inching upward. The ’07 Chevrolet Cobalt, Pontiac G6 and Saturn Aura now are expected to hold their ground about as well as a Honda Civic, Honda Accord and Toyota Camry, respectively.

Despite the reduction in incentive spending, Pontiac retail sales in July were the best since August 2003, while overall market share is “trending up,” GM says.

No doubt Ford and Chrysler have taken notice.

And it appears after four frenetic years, Big Three-style rebates finally are falling out of fashion.

[email protected]

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.