GM Plans Sales Blitz to Clear Out 2004 Models

DETROIT September 21, 2004; John Porretto writing for the AP reported that in true retail fashion, General Motors Corp. is planning what it hopes will be a clearance sale next week on 2004 models, offering zero-percent financing for 72 months to help unload a backlog of inventory.

Industry observers, however, say the blitz could hurt sales in the coming months and beyond.

GM spokeswoman Deborah Silverman said the company had no comment on such a promotion, but dealers say they were notified in recent days of the program, which applies to brands such as Chevrolet, Pontiac, Buick and GMC. The dates are Sept. 28-30.

"I'm really excited about it," said Chris Carrubba, general manager of Jim Robinson Chevrolet-Cadillac in Pascagoula, Miss. "I think it's going to spark interest and help us move out some inventory."

Other brands, including Chrysler and Isuzu, have offered no-interest loans for 72 months. Analysts say GM is clearly anxious about the above-average number of 2004 models sitting on lots and the need to make room for new 2005 models on the way.

GM, the world's largest automaker, is counting on new entries such as the 2005 Chevrolet Cobalt premium small car and Pontiac G6 midsize sedan to propel business in the final months of 2004.

For the first eight months of the year, GM's U.S. sales were off 1.6 percent from a year ago. After a third straight month of negative sales growth in August, GM earlier this month added $500 to $1,000 in cash on most 2005 model year vehicles already available.

GM spent an average of $4,379 per vehicle on incentives in August -- the most of any major automaker.

"Their backs are against the wall to an extent. They have to do this to keep inventory moving," said Mike Wall, an industry analyst with CSM Worldwide in Grand Rapids. "The question is, once this is over, what's next? Are consumers going to expect these kinds of incentives on '05 models? My answer is: probably, or pretty close to it."

Bob Schnorbus, chief economist for J.D. Power and Associates, said next week's promotion will almost certainly "pull ahead" sales that may have occurred in the coming months. It also places some people in a car or truck they may drive for the next six years.

"For whatever reason, consumers right now just aren't in a buying mood, and it's taking more and more to pull them into dealerships," Schnorbus said. "This is going to do that. But are you going to get beyond the people who were already in the market?"

GM and Ford Motor Co. both reported disappointing U.S. sales for August, prompting them to cut planned vehicle production in the fourth quarter, which could hurt profits. Toyota Motor Corp. and Honda Motor Co., the top two Japanese automakers, also reported sluggish sales, which analysts and industry executives attributed in part to Hurricane Charley in Florida, high energy prices and declining consumer confidence.

In a new industry report card, Standard & Poor's says its "discomfort with GM's performance has grown in the course of this year."

"U.S. market share has eroded significantly ... despite the introduction of major new products, a heightened emphasis on low-margin sales to daily rental companies and continuing aggressive discounting," the S&P report said.

On a positive note, S&P said earnings at GM's finance arm continue to exceed expectations, and that GM's overall liquidity and funding flexibility remain satisfactory.