GM CEO: Incentives Costly, but Necessary

DETROIT May 2, 2003; Michael Ellis writing for Reuters reported that General Motors Corp. has no plans to cut back on its use of incentives to sell new vehicles, even as they grow more costly and less effective, Chairman and Chief Executive Officer Rick Wagoner said on Friday.

"It's getting more expensive and it's getting to require more creativity" to develop new incentive offers, Wagoner told reporters after giving a speech to the Detroit Economic Club. "I'm not saying in any way we're backing off."

GM and the Chrysler arm of DaimlerChrysler warned in April they might not meet 2003 earnings targets. Both cited a weak economy and heavy incentive costs.

Yet GM on Thursday extended what it called its most aggressive incentives ever -- zero-percent interest financing for loans of up to five years across most of its lineup.

The incentives boosted sales of GM pickup trucks, sport utility vehicles and minivans to record levels in April. But car sales plunged more than 21 percent and the incentives failed to stem GM's falling market share, which has dropped year-over-year in seven of the last eight months.

U.S. vehicle sales surged to record highs after the zero-percent financing deals were first introduced in October 2001, Wagoner noted. This helped the automaker post higher market share and stronger earnings.

"We didn't see as big as impact as I wold have hoped for from the incentives," said Bob Schnorbus, chief economist with J.D. Power and Associates, which tracks the automotive industry. "The consumer is probably still washed out from the stress of the war."

In addition, more recently, foreign automakers have ratcheted up their own incentives, and consumers have grown accustomed to the deals.

Wagoner said that falling sales of aging lineup of entry-level cars have hurt the automaker's market share.

"Where we've been running weakest is at the bottom of the market. Frankly our products are a little bit older," Wagoner, in his first major speech since becoming chairman, said when asked about market share. "Clearly we're doing a great job in trucks."

Wagoner repeated his support for a U.S. tax cut to stimulate the economy, lift vehicle sales and boost the stock markets, which would help grow the assets in GM's underfunded pension plan.

Wagoner and his Detroit rivals, the heads of Ford Motor Co. and the Chrysler side of DaimlerChrysler met with President Bush in Michigan earlier this week to lend their support to the administration's tax cut plan.

"Personally, I believe that we all should be supporting a big stimulus package to get the U.S. economy growing according to its capabilities again -- and soon," he said in his speech.