|The Cadillac DTS will cost almost $5,000 less than the DeVille it replaces as GM tries to move to lower prices rather than large cash-back offers to attract buyers.|
NEW YORK (CNN/Money) -
General Motors Corp. and Ford Motor Co. announced Monday they would cut list prices on many 2006 models in an effort to move away from using costly cash-back offers and other incentives to attract buyers.
GM's (Research) new pricing strategy, dubbed "Total Value Promise," will cut the list price of 30 of its 76 models by between 3 percent and 16 percent.
Ford (Research) named its offer "True Blue Pricing" and said it would have 14 vehicles with lower 2006 list prices than their 2005 versions. The drop in list price appears more modest than the steepest price cuts at GM. The F-150 pickup, the nation's best selling vehicle, has a 2006 list price of just under $20,000 for its least expensive model, about 8 percent less than the least expensive 2005 version.
Ford, Chrysler extend employee pricing
In addition, Ford and Chrysler are extending the employee pricing incentive on 2005 models. Ford announced Monday that its program would continue through Labor Day. Industry sources told Reuters Monday that DaimlerChrysler's Chrysler arm would also extend its program, but it was not immediately clear how long the incentive would last. The company is expected to make an announcement Tuesday.
GM debuted that program in June, and Ford and DaimlerChrysler's (Research) Chrysler group joined with their own version of the popular offer. Ford also said Monday it has extended the offer to a group of six 2006 models already in showrooms.
Offering members of the general public the chance to buy 2005 models at the employee discount price has produced very strong sales, but it is also the kind of pricey incentive that made customers of the traditional Big Three come to expect expensive sweeteners from the domestic automakers.
GM, which after two months of employee pricing has relatively few 2005 models left at dealerships, has said the offer ends Monday. Company officials said there would be word Tuesday about the incentives for the remaining 2005 models.
Incentives to continue
General Motors executives admitted that they will continue to offer some incentives on 2006 models going forward, even as they move prices lower.
"Incentives are still going to pay a big role in the total value promise," said Brent Dewar, GM North America vice president of marketing and advertising, in a conference call with reporters Monday. "We're still going to be creative and aggressive in the market."
But the combination of incentives and lower prices could squeeze the revenues and profitability of GM and Ford even further, according to experts.
"I think it's a hard drug to get the consumers off of frankly," said Jack Nerad, executive market analyst for Kelley Blue Book, the auto pricing tracker. "We've certainly seen that in our surveys. Many consumers have become very dependent on incentives to motivate them to get up off the couch and into showrooms."
While Japanese automakers such as Honda and Toyota have seen strong sales increases without the use of incentives, U.S. domestic brands buyers are trained to look for cash-back or other incentives to buy those models, he said.
"I think it's going to be difficult to get consumers to believe that somewhere down the line, there won't be incentives on these GM vehicles," he added.
While GM said it will detail 2006 incentives on Tuesday, Jesse Toprak, senior. analyst with Edmunds.com, an online service used by car buyers, said some 2006 models already have up to $1,000 cash back or low-interest financing available.
"They basically want to lower the sticker price closer to transaction price and lower the incentive, but not get rid of it altogether," said Toprak. "Whenever there are large rebates, it has impact on perception, on customer attitudes and an impact on resale value."
Beyond lower prices
In addition to the lower pricing, GM said it also announced it would make the StabiliTrak safety feature standard on most GM vehicles by 2010. It will also offer a year of OnStar communication service on 34 models and a four-year, 50,000 mile warranty on eight Buick and Hummer models.
GM said it will also offer additional standard options or improved warranties on another 20 of the 2006 models without lower pricing.
GM has been an industry leader in incentive offers. They include the zero-interest financing that it used in September 2001 to spur sales in the wake of the terrorist attack earlier that month.
Click here to read about the end of GM's discount promotional campaign.