GM Bankruptcy: What Happened to the Bargains?
By Michelle Krebs June 15, 2010When General Motors filed for bankruptcy protection in June 2009, the headlines were 
appropriately dramatic. "End of an Era", posted CNN.com, while the Wall Street Journal read, "GM Collapses into Government's Arms." Edmunds' own AutoObserver.com remarked it was "History in the Making."
The tone was funereal -- and rightly so, as the move would cut four entire divisions, thousands of dealerships and of course even more jobs. Still, a few saw something of a silver lining in the news: the potential to get some great deals.
But a funny thing happened on the way to the estate sale: the bargains didn't show up -- not right away, at least.
In fact, in the months leading up to bankruptcy, GM actually dropped incentives by a little more than $1,300 per vehicle sold, according to Edmunds.com's True Cost of Incentives (TCI), helping GM to slash its average discount (from MSRP) per vehicle from a high of 18.4 percent in February 2009 to 15.7 percent in June 2009, just a few ticks higher than the 15.4 percent industry average.
Source: Edmunds.com
Reverse Psychology
"Bankruptcy sent mixed messages to vehicle shoppers -- what looked like disaster to some was seen as a flashing red sign of deals to others," Edmunds.com industry analyst Ivan Drury said, concluding that, ironically, "the deal seekers inflated demand to the point where discounts were not needed to move units."
Indeed, bargain hunters entranced by GM's near-death throes drove up purchase intent for GM vehicles on Edmunds.com by 11 percent and then an additional 4 percent in the two weeks leading up to the automaker's June 1 bankruptcy announcement.
The spike seemed destined to be short-lived as various factions lined up outside bankruptcy court, vowing to fight. But if that got the bargain seekers' hopes up, GM quickly dashed them by blitzing through the proceedings in just 40 days.
Taxpayers Kick In More Aid
Meanwhile, Congress was busy putting the final touches on its Cash for Clunkers program -- officially the Car Allowance Rebate System -- that would give the emerging "New GM" a powerful new dose of demand through July and August.
"CARS provided the perfect scenario for GM," Drury told AutoObserver. "Having been the No. 1 selling automaker in the U.S. for decades, they had more than a few vehicles that qualified for the program and, with customer loyalty running near 50 percent or better over the last few years, were well positioned to welcome back existing customers," he said.
And with the CARS kicking in as much as $4,500 per vehicle, GM was able to push its average cost of incentives down even further to $3,237 per vehicle in August 2009, the lowest in seven months. So although there were bargains to be had, they came at the taxpayers' expense, not GM's.
Only when CARS wrapped up at the end of August did GM find itself needing to juice the deals to keep sales alive. "Once the government rebates ran out, GM was still left with excess 2009-model-year vehicles on dealer lots," Drury said.
GM incentives in September jumped by more than $1,000 per vehicle, three times the average uptick seen in the industry at the time, finally making GM cars into the relative bargains shoppers had been expecting all along.
Adopting the Orphans
Even so, the very best bargains still did not emerge until the closing months of 2009, half a year after the bankruptcy began. That's when GM went all-in to sell off the last of its 2009 models, particularly those under soon-to-be sold or shuttered brands.
"During November, 2009-model-year vehicles made up 59.1 percent of what GM sold while the industry average was only 29.6 percent," Drury said, noting, "This is when deals were to be had."
Source: Edmunds.com
Indeed, pushing the last of the Pontiacs out the door, for instance, meant selling them at an average of 27.3 percent off MSRP in December, more than double the 12.3 percent average industry discount for the month.
But even those deals were fleeting. With that excess inventory out of the way, GM was free to start 2010 by slashing incentives by more than $1,000 per vehicle. This brought its average discount per sale to within a percentage point of the industry average through the first four months of the year.
Dig for Deals
These days, with the economy recovering and GM winning not just accolades but new customers for its new and redesigned products such as the Chevrolet Equinox and the Buick LaCrosse, true bargains are harder to find on a GM dealer's lot.
But models that are due to be revamped or replaced are still good bets for deals, Drury said. For instance, though the all-new Chevrolet Cruze is grabbing headlines, the outgoing Chevrolet Cobalt model it replaces is undergoing a sell-down with incentive offers already in the $3,000 range. (A full list of such "dead and dying" models can be found on Edmunds.com.)
Still, Drury said, "Dwindling inventories in the industry are going to make great deals that much harder to find over the next few months." He advises consumers to "keep an open mind when shopping, and do your research."
"Don't just look for cash back," he said, noting in particular the 0 percent financing offers GM has made available on several models -- and which pushed GM's average cost of incentives up by $500 in May -- are likely where consumers can save the most today. -- Mark Holthoff, Manager, Edmunds.com Customer Support; Edmunds.com Analyst Ivan Drury provided the data and data analysis for this post.
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