GM's 0 percent financing helped calm a nervous nation after 9/11
Photo credit: REUTERS
The country needed leaders, and General Motors stepped up.
"I was right in the middle of it," says John Middlebrook, then vice president for vehicle brand marketing and corporate advertising. "It looked like we were going into a paralysis, both as a country and as a company."
GM quickly devised a bold plan that jump-started auto sales and the economy.
In a matter of days, GM created "Keep America Rolling," an incentive program that offered 0 percent loans for nearly all models. It tried to engender confidence in the economy, and it stimulated auto sales. Americans seemed to breathe a collective sigh of relief.
"It was a stroke of genius," says John Smith, now GM's group vice president of global product planning. "It was a very inspired moment and one I was frankly rather proud of."
Middlebrook, 67, who retired July 1 as GM's vice president of global sales, service and marketing, agrees.
"There was just no hesitation right up and down the company," Middlebrook says. "It is a very expensive thing to do, and that was not in our plans. But it was the right thing to do."
GM estimated that the program, which ran through December, added about 1 million total U.S. sales by year end. The automaker grabbed price leadership of the domestic auto industry. Ford and Chrysler followed suit and others crafted their own incentive programs.
But while confidence was restored and sales jumped, the incentives created problems in later years. U.S. consumers grew accustomed to hefty incentives on new cars and trucks. GM, and those who followed with 0 percent financing, turned America into a nation into incentive-addicted, deal-obsessed shoppers.
The right thing
Today, seven years after the terrorist attacks, the impact of Keep America Rolling and the gaggle of incentive programs that followed still are being felt in dealership showrooms.
"You can make the case that it started the spiral of increasing incentives," Middlebrook says. "You have to get out of that. The real answer to it is great product that doesn't need to be incentivized. We're seeing that hopefully now, and certainly are seeing it with the Enclave, CTS, Malibu and other products that we have in the market."
GM followed its Keep America Rolling campaign with others such as "0-0-0" — nothing down, no payment for 90 days and 0 percent financing — in 2002 and the "GM Employee Discount for Everyone" in 2005.
Keep America Rolling pushed GM's average incentive costs to an estimated $3,477 per vehicle by December 2001, according to CNW Marketing Research, of Bandon, Ore. That was up from $2,897 in August 2001, the month preceding 0 percent financing.
The strategy of using heavy incentives to battle for market share was criticized by Wall Street for shrinking industry margins but praised by dealers for keeping sales high.
"Because (Keep America Rolling) worked so well, there was the feeling that by keeping up the pressure we could acquire share at other people's expense," recalls GM Vice Chairman Bob Lutz. "What happened, of course, is that no one was willing to lose share, so it became a struggle to the death. Everybody matches everybody else, so you get locked in a downward spiral and everybody is afraid to be the first one to get off because it will cost market share. So now you have a disincentive to get off a failed policy."
Lutz joined GM as vice chairman for product just days before the Sept. 11 attacks.
While the heavy discounting played a major role in the rebirth of confidence in the U.S. economy, the incentive barrage continued for years after the terrorist attacks. GM was destroying brand value, margins and used-car values with this heavy discounting, Lutz says.
Rather than selling mediocre cars at bargain prices, Lutz championed building "the best vehicles we know how to do, in every category and every price class, so that we can start selling them for what they're worth."
GM CEO Rick Wagoner has backed his approach.
"But he said there is going to be a pesky in-between phase when we're coming out with the new stuff and our old reputation for price-deals will still linger, and we'll still have low residuals," Lutz says. "So, for awhile, we'll be producing expensive, great cars, but we'll still be paying incentives and getting a double hit. That has happened, but I think we're almost through it."