They call it "value pricing," and those are the latest buzzwords in automotive pricing. General Motors is especially interested.
The idea is to move the sticker price closer to the transaction price and eliminate - or at least lessen - the need for today's huge rebates. GM currently is paying $2,500 or more on 17 nameplates. Under the new plan, some prices will be reduced.
It's a noble aspiration, but GM and others are warned to be cautious. Even good ideas can backfire.
First and foremost, don't take the price cuts out of the dealer's hide by reducing the dealer discount. GM has lifted the lid on a few 2006 prices. The discount has been shaved by one percentage point on some models, but that is offset by higher dealer discounts on optional equipment. That is good. Dealer discounts now are as low as they should go. Dealers purchase some GM models at only 5.5 percent below sticker.
Automakers must advertise and merchandise their pricing actions honestly and thoroughly. Customers believe rebates. They probably do not believe manufacturers or dealers when they say prices have been cut. Dealers must be prepared for the shoppers who, after the price reduction has been explained, insist, "But how much is the rebate?" They won't be kidding; they still will expect the givebacks.
Automakers flirted with value pricing in the 2005 model year, but the foray was unsuccessful. Stickers rose faster than transaction prices. Automotive News estimates that stickers went up an average of $563, and Edmunds.com says transaction prices rose $482 on average. Stickers are still an average of $672 higher than transaction prices, hence rebates.
GM gave value pricing a kick in the tail this month by extending the employee discount price to all consumers, which will slice transaction prices and send rebates soaring. The employee price is 3 percent to 5 percent less than dealer invoice.
But GM seems to be serious about value pricing for 2006. Other manufacturers may want to follow GM's lead.