GM sweetens incentives to owners of recalled cars, sees sales rise

Since early March, GM has been offering owners of select recalled vehicles $500 toward the purchase of a certified pre-owned vehicle. But it upped the ante by allowing those customers to qualify for employee pricing on a new vehicle.
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A General Motors new-vehicle incentive offered only to owners of GM vehicles plagued with defective ignition switches might have helped the automaker’s new-car sales in April.

Sales last month rose 7 percent from a year earlier.

GM recently sweetened the deal for owners of models included in the ignition-switch recall, which includes 2005-10 Chevrolet Cobalts.

Since early March, GM has been offering those owners $500 toward the purchase of a certified pre-owned vehicle. But it upped the ante by allowing those customers to qualify for employee pricing on a new vehicle. The incentives are in addition to any other incentives for which the consumer qualifies.

GM did not immediately reply to e-mails asking when the employee pricing incentive went into effect.

During a conference call with analysts last week to discuss GM’s first-quarter financial results, CEO Mary Barra said she views the dealership traffic created by the 12 recalls GM announced in the first quarter -- about 5.2 million vehicles overall, including some in need of multiple fixes -- as a “huge opportunity.”

Not just used-car buyers

Though most of the vehicles involved in the recall are older vehicles, their owners aren’t necessarily used-car buyers.

Jake Moore, general manager of Country Chevrolet in Warrenton, Va., says he sold five new Chevys -- two Malibus, two Cruzes and one Spark -- in April to customers who traded in recalled 2005, 2006 and 2010 Chevy Cobalts.

“They get a better car and we don’t keep the trade-in,” says Moore. He says four of the trade-ins had over 100,000 miles and were sold at wholesale. “We kept one. It’s a 2010 Cobalt and we’re waiting for the fix.”

Morgan Stanley analyst Adam Jonas said in a research note last week that “incremental showroom traffic” could provide a lift to GM sales over the next six months as dealers work through repairs.

He estimated that, if dealers could convert 2 percent of those owners into new-car buyers, it would add more than 1 percentage point to GM’s U.S. market share, which stood at 17.3 percent through March.

‘Get people in the door’

“Auto companies spend a fortune just to get people in the door,” Jonas wrote. “With proper execution, GM has the chance to turn a bad situation into a new car sale.”

A survey of vehicle shoppers who searched for new-vehicle prices on Kelley Blue Book’s site April 15-17 found that only 5 percent of those who were considering a Buick, Chevrolet, Cadillac or GMC vehicle had changed their mind as a result of the recall, says Arthur Henry, an analyst at Kelley Blue Book.

He also said that Chevrolet’s reputation among consumers who frequent Kelley’s site declined in the first quarter compared to the first quarter of 2013. But there was no erosion of the brand’s perceived durability, reliability and safety, which are key factors that shape purchase decisions.

‘Expect some issues’

“You don’t expect a product not to have any issues. You’re going to expect some issues at a point in time,” Henry says. “When it happens, how does that brand or manufacturer respond to that issue?

“If that manufacturer is able to make that fix, then you’re able to grow the perception of durability, reliability and safety, more so than if there was no issue at all.”

Jessica Caldwell, a senior analyst at Edmunds.com, said, “A review of shopper consideration on Edmunds.com finds that the recalls have had very little -- if any -- impact on GM brands. This analysis shows that shoppers continue to consider GM models at about the same level as before news of the recalls broke.”

You can reach Arlena Sawyers at asawyers@crain.com.


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