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The Honolulu Advertiser
Posted on: Wednesday, January 11, 2006

GM cutting prices and incentives

By Justin Hyde
Detroit Free Press

General Motors announced yesterday at the North American International Auto Show that it would reduce prices by an average of $1,300 on many of its vehicles. “I think it’s a smart move because it’s less deceptive,” Deutsche Bank analyst Rod Lache said.

JOHN F. MARTIN | General Motors via AP

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DETROIT — General Motors Corp. will cut the window sticker prices on three-fourths of its models by an average of $1,300 today in an attempt to break the feast-or-famine cycle of huge incentives it has fostered during the past few years.

The new prices will apply to 57 of GM's 76 North American models, which accounts for about 80 percent of its volume. All Chevrolet, Buick and GMC models will be lowered, as will some Pontiac and Cadillac vehicles. Saab, Saturn and Hummer prices will not be affected.

GM said yesterday the move was not an end to rebates or the occasional big promotion, and the changes would have little to no effect on the final price customers actually pay for most GM vehicles. Instead, the program will make what had been increasingly irrelevant sticker prices on GM vehicles — a key figure for Internet shoppers — closer to reality.

The moves also will affect all-new models such as the large SUVs rolling out this year that are essential to ending billions of dollars in losses from GM's automotive business.

Dealers and industry watchers criticized GM last year for emphasizing so-called value pricing on its vehicles part of the time, then launching marketing blitzes such as employee pricing and "red tag" promotions when sales slowed.

GM Chairman and Chief Executive Rick Wagoner said that some large promotions were necessary but that GM would try to stay more consistent.

"We do not plan on having the same kind of propensity for incentives that we've had over the past few years," Wagoner said yesterday at the North American International Auto Show.

"We are going to be more judicious in the use of incentives, and we think this is going to get the focus back on product."

The move garnered positive reviews from most corners of the auto industry, where profits have withered under the burden of U.S. incentives since GM launched no-interest loans in 2001.

"I think it's a smart move because it's less deceptive," Deutsche Bank analyst Rod Lache said. "People who are going on the Internet can get the right news up front."

Last year, "when we moved boldly and really put value out there, the response was terrific," Wagoner said. "When we took, if you will, a half step, it wasn't as good.

"We would hope to significantly reduce incentives. The market will tell us how that works out."

Other experts have said GM needs more drastic measures to regain profits after losing $3.9 billion through September of last year. Jerome York, the former Chrysler Group executive who's advising billionaire Kirk Kerkorian on his GM stake, told a gathering of Wall Street analysts yesterday that GM should cull its model lineup.

"It's questionable in many people's minds, mine included, if that many brands and models are manageable given the economics of the industry," York said.

As of December, GM's vehicles carried an average incentive of $3,827, sales analysis firm Autodata reported. That includes all rebates, loan incentives and promotions. Such incentive costs were one of the forces that pulled GM's North American business into $3.8 billion in losses through the first nine months of 2005.

GM said it would launch a major advertising campaign today touting the move.

GM will not take any financial charge from the move, however, because the prices being lowered are suggested retail values, not the invoice price dealers pay. The company said it expected no immediate reduction in revenues.

The changes vary widely across different models, and Mark LaNeve, GM's vice president for North American vehicle sales, said the largest decreases were aimed at the most competitive parts of the market. For example, the sticker price on the Chevrolet Cobalt LS Coupe will be shaved by $1,500 to $12,990. GM said that's about $2,000 less than the Toyota Corolla CE and $1,000 less than a Ford Focus ZX3.

The largest cut was made on the Cadillac SRX crossover, which had its sticker reduced $3,005 to $36,990.

LaNeve and Wagoner said the main target for GM's moves were the 67 percent of shoppers who research vehicles online — those who can easily find GM's sticker prices but have trouble researching the incentives GM uses, which can vary widely from region to region.