GM seeks to jump start consumer confidence
A day after the president threw down the gauntlet for the American auto industry, General Motors Corp. began the work of selling cars anew.
On Tuesday, even as its new chief executive acknowledged the growing possibility of bankruptcy, the ailing carmaker announced an aggressive new incentive plan that, in part, will cover car payments for customers who lose their jobs.
The program, which GM is calling Total Confidence, is designed to persuade consumers to venture back to the showroom, despite the bad economy and black clouds over Detroit, and buy its vehicles.
“Consumers right now are looking for corporations to be sympathetic with what they’re going through,” said Jeff Goodby, co-chairman of Goodby, Silverstein & Partners, an ad agency that promoted a similar program by Hyundai Motor Co.
The White House has given General Motors 60 days, and Chrysler only 30, to work out their structural problems before the federal government yanks financial support. The clock is now ticking, but even if negotiations with bondholders and the United Auto Workers union are successful, one problem rises above all others.
No matter how sharp the budgetary knives the carmakers wield, GM and Chrysler -- and the $17.4 billion in taxpayer cash they’ve borrowed -- are sunk if they don’t start selling more vehicles, and fast.
There’s no time now to change the cars GM and Chrysler deliver to dealership lots, but they can change how they’re selling themselves to the car-buying public.
Launched in January, Hyundai’s Assurance program allowed laid-off customers to return their new cars, giving confidence to otherwise nervous consumers. The South Korean carmaker’s U.S. sales declined 14% last year, but with the incentive in place, they have risen 5% this year through February -- despite the fact that the industry as a whole has fallen 39% in that time.
“It’s going to be difficult to change products and configurations,” said Goodby, but feeling the buyer’s pain “is something [GM and Chrysler] can do today.”
Good through April 30, GM’s Total Confidence program will make as many as nine car payments of up to $500 each for car buyers in the event they are laid off within two years. It will also aid those who owe more on their financed vehicle than it’s worth, covering that difference when the vehicle is later traded in for another GM auto.
The plan was similar to one introduced Tuesday by Ford Motor Co. that will cover up to 12 months of payments, up to $700 apiece, in the event of unemployment. It’s called Ford Advantage.
“What we found was that traditional incentives just weren’t working,” said Mark LaNeve, GM’s North American head of sales and marketing. He said the company would push Total Confidence with commercials during this weekend’s Final Four basketball tournament.
Chrysler, which has set records in recent months with sky-high cash-back incentives, has not announced such a program. But people familiar with the company’s operations said it was preparing a new marketing push that would be announced as soon as this week.
The industry is braced for another round of bad news when March sales figures are released today. In the first two months of this year, GM and Chrysler’s combined sales volume declined 45% as the overall industry rate fell to its lowest level in nearly three decades.
Even the most conservative projections made by GM and Chrysler in restructuring plans they submitted last month -- calling for sales rates a third below 2008’s -- were lambasted by the administration as too optimistic.
Industry experts lauded the assurance programs from GM and Ford.
“Confidence-inspiring programs such as these offer the best path to bridge low consumer confidence with rising pent-up demand,” said Itay Michaeli, auto analyst at Citi Investment Research.
But considering the long, slow loss of public trust suffered by Detroit -- in surveys consumers routinely perceive Japanese autos to be more reliable even when evidence shows that’s not the case -- an even more direct approach could be called for.
GM and Chrysler need to make clear that they’re thinking about the U.S. public and its needs, not just their own woes, said Kelly O’Keefe, a professor at Virginia Commonwealth University’s Brandcenter. For example, they could highlight ways they’re going to help Americans keep their jobs, such as promising to move some factories back from overseas.
“It doesn’t take a rocket scientist to understand that there should be something in this equation for the consumer,” O’Keefe said.
In 2001, less than two weeks after the terrorist attacks, GM launched Keep America Rolling. The heavily advertised interest-free financing program led to a sales run that has received credit for stabilizing the economy.
But that kind of conversation with the public has been sorely missing during this downturn, said Rob Klingensmith, chief strategy officer of San Francisco ad agency Cutwater, which worked for Chrysler’s Jeep brand until early this year.
He said Jeep was good at pushing its new models and their features -- such as a cooler in the back seat -- but when the agency suggested talking to consumers about the environment, “the meeting came to a complete stop. They said, ‘That may be what’s on people’s minds, but it’s not what we want to tell them.’ ”
Things have changed dramatically since then, however. GM and Chrysler have been given ultimatums and are facing bankruptcy if they don’t please their new federal taskmasters.
“We need to reinvent General Motors and we need to do it in a very, very abbreviated time period,” said new Chief Executive Fritz Henderson, whose predecessor was ousted by the Obama administration last weekend. He acknowledged that bankruptcy was now on the table.
“Our preference is to do this outside a bankruptcy process,” he said, but added, “In the event that we need to, we will do it.”
But beyond more short-term funding, the carmakers are also going to get sales support. Obama unveiled a plan Monday to back warranties on new cars sold by GM and Chrysler in the coming months, which could persuade tens of thousands of reticent buyers to sign on the dotted line.
The president also mentioned implementing a cash-for-clunkers type rebate program that a Barclays Capital Research report said could “boost sales very quickly,” and he instructed the Internal Revenue Service to publicize a little-known deduction on new car sales tax that was inserted into the $787-billion economic stimulus package.
And Obama did one more thing to get people in the buying mood: He acted like a salesman.
“In 2008, the North American Car of the Year was a GM,” he said. “This year, Buick tied for first place as the most reliable car in the world.”
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