Exclusive One-on-One with GM's Mark LaNeve
July 13, 2007

In an effort to kick -– or at least taper back –- the incentive habit as it was launching a host of new vehicles, General Motors announced that for the 2006 model year it was cutting prices on vehicles accounting for about 90 percent of its sales volume -– some by as much as $2,500.

The timing of the price repositioning came as GM headed into 2006 launching 19 new products representing more than 1.5 million sales. GM has introduced even more new models since then.

“This is a big step for us and arguably the biggest price repositioning in our history,” Mark LaNeve, GM vice president, North America Vehicle Sales, Service and Marketing, said in making the announcement at the 2006 Detroit Auto Show. “This move is in line with our customers’ desire for simple, compelling prices.”

But not enough consumers have found the prices compelling, apparently.

Only a week after reporting unexpectedly dismal June sales that resulted in GM’s lowest monthly market share ever (aside from July 1998 when it was shut down by a strike), LeNeve gave GM’s so-called value pricing a B grade. In an interview with AutoObserver.com, LeNeve says value pricing has done positive things for GM but has not generated the hoped-for sales volume.

Dismal June Sales

LeNeve said in the interview that GM expected June and July to be difficult months for sales. But June, at least, was worse than expected.

“We loved May,” he said. “But we knew June was going to be tough on a year-to-year comparison, because last year during those months we had a huge zero-percent financing for 72 months blow out. Last year, we had dramatically higher sales in June and July as a result but driven by huge incentives.

“But June was even softer on a retail level than we’d thought,” he added. “And the month-end sales didn’t drive demand like we’d hoped.”

In response, GM bumped up incentives. As a result, LeNeve expects July sales to be off from a year-ago but up from June. At mid-month, July sales were 30 percent ahead of June sales.

However, incentive enhancements were on selective models and, in some cases, in selective markets and still relatively modest compared with GM’s history. The new incentives are mostly on full-size pickup trucks -- the Chevrolet Silverado and GMC Sierra -- introduced last year. The incentives are intended to counter aggressive moves by Toyota on its new Tundra, launched in February. In mid-June, Toyota offered zero-percent financing for 72 months on its trucks. GM doesn’t want to go there and is offering low-interest –- but not zero-interest –- financing across the board on its trucks.

“We don’t want to make our new pickup trucks about zero-percent financing, especially in the first year,” said LeNeve. “We want them to be sold on the basis that they are good trucks --- best in class.”

GM also doesn’t want to offer huge incentives in June and July, leaving no inventory in August and having terrible August sales

“Our strategy is to build the business and the volume based on the product and value story, not on incentives,” said LeNeve. But he admitted GM isn’t about to leave dealers hanging out to dry without incentives that are competitive.

Not Getting Credit

“Am I frustrated? Yes,” said LeNeve to a question of how he felt about having good products on the market but not increasing sales volume. “Do I understand this is a marathon, not a sprint? Yes.”

He pointed to positive signs. GM’s new crossovers –- Buick Enclave, GMC Acadia and Saturn Outlook. Sales are strong and incentives are nil. Demand, based on Edmunds.com’s analysis of consumer purchase intent, looks to continue strong. “We can’t build enough of them,” said LeNeve.

He noted that GM’s newly redesigned large SUVs –- Chevrolet Tahoe, GMC Yukon, Cadillac Escalade and the like –- are selling well and have gained seven points of market share to hit 75 percent of the total market, by GM’s calculations. But that’s in a segment that’s down 40 percent in sales.

“I’m frustrated purely on a reputation basis,” he said. “I’m frustrated that we’re not getting the credit we deserve in terms of volume.”

The Unexpected: Toyota, Honda Incentives

In addition, what GM hadn’t expected was for Honda and, more particularly, Toyota to jump into the incentive game as heavily as they have and increase their sales to daily rental car fleets. Of the Big Six automakers, only Honda and Toyota have higher incentives in June than they did the same time last year, according to Edmunds.com’s True Cost of Incentives (TCI) analysis for June.

Meantime, GM has adopted the opposite strategy: scale back costly incentives and unprofitable daily rental sales.

True Cost of Incentives for the "Big Six" Automakers
Automaker	June 2007	May 2007	June 2006
Chrysler Group	$3,962	$3,831	$4,045
Ford	$3,187	$2,942	$3,648
General Motors	$2,830	$2,920	$3,135
Honda	$1,397	$1,300	$770
Nissan	$2,218	$1,943	$2,677
Toyota	$1,308	$1,128	$961

Source: Edmunds.com

“I’m not surprised. I’m shocked,” said LeNeve of bigger incentives from Honda and Toyota.

“I had always admired their disciplined strategy of not doing absolutely anything to go after volume,” LeNeve said. “Now they are going down the road we were on, and we know the problems with it. We’ve been there, and I have the T-shirt to prove it.”

LeNeve pointed out that Honda and Toyota are now big companies. In order to achieve double-digit, year-over-year sales increases, as they and analysts have come to expect, it requires them to sell significantly more vehicles. At 100,000 sales, a 10-percent increase is 10,000 vehicles. But at 2 million sales a year, it takes 200,000 sales to achieve a similar percentage increase.

“It makes a 20,000 order from a daily rental company look good,” he noted.

Agreed Jesse Toprak, Edmunds.com’s executive director of Industry Analysis for Edmunds.com: "The competitiveness of the marketplace seems to be catching up with the Japanese heavyweights.”

Down the Road and Misc.

LeNeve said GM does not yet have numbers on the success or lack of success of Saturn’s side-by-side comparison promotion. Launched in June, Saturn required its dealers to purchase a Honda Accord and Toyota Camry to use for test-drives against Saturn’s Aura.

LeNeve said feedback is anecdotal that people think it is positive and an act of confidence. However, he’s stunned and not thrilled with the fact that it is the first test-drive of an Accord or Camry for many of the customers.

He said a similar though not identical program might be used to launch the critically important Chevrolet Malibu in the fall.

As for the upcoming Chevrolet Tahoe and GMC Yukon with the new Two-Mode hybrid powertrain developed by GM, DaimlerChrysler and BMW, LeNeve said GM initially will eat rather than pass along to the buyer the expensive development costs of the innovative hybrid. Instead, GM hopes to push the volume and recover its investment by increasing volume and efficiency so the price per unit of the technology comes down. Chrysler will offer the system in the Dodge Durango and Chrysler Aspen in early 2008. BMW will offer it as well.

Edmunds.com’s analysis shows buyers typically prefer hybrids that are small, less expensive cars focused on high fuel-efficiency versus large performance-oriented or luxury hybrids. To that end, Honda recently dropped the performance-oriented Accord hybrid for lack of consumer interest.

“That’s what’s frustrating about the CAFE talks in Washington,” said LeNeve. “There’s this belief that automakers have the technology to dramatically increase fuel economy, and the consumer is willing to pay the added cost of it. The Honda Accord hybrid is evidence that they will not.”

Indeed, the Tahoe/Yukon will be an interesting test of new hybrid waters.

LeNeve, in fact, expects the affluent buyers of the Tahoe/Yukon to buy because they want to be first to have the technology more than purchasing it to save money on its greater fuel-efficiency, estimated at 26 to 27 miles per gallon. They may also be attracted to the hybrid image, since the hybrid Tahoe/Yukon looks a bit different from the non-hybrid versions, he said.

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