GM to offer money-back guarantee
Marketing push aims to jump-start automaker following reorganization
The Associated Press
updated 8:05 a.m. CT, Mon., Sept . 14, 2009
General Motors is hoping to jump-start its revival by guaranteeing car buyers that if they don’t like their new Chevrolet, GMC, Buick or Cadillac, they have 60 days to bring it back for a full refund.
The marketing effort that starts Monday is called “May the Best Car Win” and aims to win back customers leery of GM since it filed for bankruptcy protection earlier this year. The nation’s largest automaker needs to improve sales so it can repay billions in government loans and stay in business.
New GM Chairman Edward Whitacre Jr. will appear in the initial burst of ads, telling viewers in his folksy, Texas accent that he too had doubts about the company when he joined this summer. Now, he likes the cars he’s seen, and consumers should, too. If they don’t, they can have their money back.
Running through Nov. 30, General Motors Co. will allow buyers of new GM vehicles to return them, no questions asked, for a full refund within 31 to 60 days.
The vehicles must not have more than 4,000 miles on them and the drivers must be current on their payments.
The offer applies to the Detroit company’s four remaining brands: Chevrolet, GMC, Buick and Cadillac. The Pontiac brand, which GM is phasing out, is not eligible. Leased vehicles are also ineligible.
The campaign will also pit GM’s four brands directly against foreign competitors, focusing on quality, performance, fuel economy and design.
GM must show that its cars and trucks are better than competitors’ offerings, GM Vice Chairman Bob Lutz told reporters on a conference call Thursday.
He said there is a “monumental chasm” between the public’s perception of GM’s vehicles and the autos in its current lineup. The campaign, which has been planned for months, aims to change that.
Whitacre’s appearance in the ads will be short-lived as GM shifts focus away from the corporation, Lutz said.
“We are emancipating the brands and trotting them out in the open,” he said, noting that individual campaigns for the brands will share common elements, but the words GM and the company logo will not appear.
For example, the Chevrolet Equinox will be featured in advertisements directly compared to the Honda CRV. Cadillacs will target German luxury vehicles.
The company stands behind its cars now and can offer full money-back guarantees, Lutz said. As recently as three years ago, GM would have taken a huge risk if it made such an offer. But the company’s slate of models is strong and can take on any competitors, especially foreign-made cars, he said.
He noted that similar programs in other countries have seen return rates of about 2 to 3 percent.
GM said it plans to continue its campaign through 2010. The company has been spending about $2 billion a year on advertising.
Peter De Lorenzo, a former ad executive, said GM’s money-back guarantee may make consumers less reluctant to buy GM vehicles.
“This is a Hail-Mary pass,” said De Lorenzo, publisher of autoextremist.com, a Web site that follows and is often critical of the auto industry and GM. “After this, if they can’t move the needle … I’ll begin to be concerned about GM’s future.”
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And what happens when high gas prices or government handouts go away? Americans buy what they want. And it’s usually not compact cars but powerful family sedans and sport-utility vehicles. That presents a problem for automakers. Over the next 18 months, the industry is bringing to market nine all-new small cars and subcompacts. Now the clunker program is over, and gasoline, currently hovering at $2.62 a gallon nationally, is expected to stay below $3 for the foreseeable future. So carmakers, even traditionally strong ones like Honda and Toyota, could be forced to dangle discounts before buyers. That, of course, would hammer per-car profits, especially for the Detroit Three.
Why are so many small cars appearing when gas prices are low? Because automakers must plan new vehicles three to four years ahead, plus fuel economy rules all but require more of them. When fuel prices began marching upward in 2005, everyone from General Motors and Ford to Mazda and Kia started designing and engineering small models. The first fruits of those efforts are now showing up on dealer lots. Kia is just launching its Forte compact and the small, boxy Soul. Mazda has a new 3 compact on the market. GM and Ford each have three new small cars coming by the end of 2010. By 2013, all those new models will add 600,000 cars worth of production to a market niche that has traditionally sold about 2.5 million, according to IHS Global Insight.
It is hard to make decent money on small cars unless you have a long history of making and selling them, as do the Japanese. U.S. automakers do not, and it was instructive to watch the profit roller coaster when high gas prices created a miniboom in these vehicles last summer. In May 2008 gas prices hit a national average of $3.76, and small-car sales surged a remarkable six percentage points, to 17 percent of the overall U.S. market. Suddenly, GM had decent economies of scale: Cars that once lost as much as $3,000 apiece were closer to break-even despite discounts of up to $900 each.
But the gas-price shock had worn off by August (though oil prices didn’t begin their historic retreat for another few months), and small-car sales slumped. By then, GM had ramped up production and soon small cars were piling up at dealers. Carmakers turned up the discounts, and GM later had to take off the third shift at its Ohio small-car plant. Consider this, too: While the clunker program clearly drove buyers into showrooms, carmakers spent about $1,900 per compact to help spur sales, according to Edmunds.com, which tracks new-car prices.
Carmakers badly want to believe that Americans like small cars. Eric Noble, president of the CarLab, a consulting firm in Orange, Calif., says several European and Asian carmakers have hired him to do consumer research on small-car demand. When consumers gave them the thumbs-down, the clients asked him to rewrite the questions to see if that would change the result. It didn’t. Noble believes the success of the Mini Cooper has led other carmakers to believe Americans like small cars. Among other things, he says, “they think small cars are unsafe.”
Americans also see them as cars for people who can’t afford a better ride. So the carmakers are loading up their small models with creature comforts and technology in the hopes of winning customers and charging them a premium. Ford’s new Focus compact and Fiesta subcompact will feature the Sync infotainment system, which allows drivers to load music onto an in-dash hard drive, and hands-free calling and navigation. Ford says the new SYNC-equipped Focus fetches $2,000 more than the old one. Kia has added satellite radio and hands-free Bluetooth phone technology. GM’s Buick compact will feature leather seats, electronic gadgetry, and a Lexus-smooth ride.
If carmakers don’t find enough buyers who want spruced-up compacts, the U.S. auto companies will be duking it out on price with their better positioned rivals. Then, these minicars could lead to megalosses.
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