General Motors Announces Deep Discounts

Nov. 14, 2005 — -- General Motors, in a bid to boost lagging sales, introduced an extensive new incentive program today. The "Red Tag" sale provides customers with a fixed, bottom-line price for vehicles from the world's largest auto company and deep discounts on some 2006 models.

The move comes after two months of falling sales. According to sales figures published by the company, GM sold 23 percent fewer cars and trucks in October than it did a year ago. Year-to-date sales are down 3.5 percent and the company's market share has slipped to about 22 percent of cars sold in the U.S.

Why is this happening? Analysts say that General Motors has seen its sales fall after shifting its product lines to gas-guzzling SUVs and trucks, which have lost their luster as gas prices shot up.

Consumers have also learned to wait for a sale before buying. GM and the other domestic car companies introduced significant incentive programs -- remember zero percent financing? -- after 9/11 to keep consumers in a buying mood. Now people expect deep discounts and great deals on financing every time they head to the car lot.

Recent programs, like last summer's successful "employee discount for everyone" promotion, caused what analysts call a "payback problem." Analysts say that summer sales didn't bring new customers into the market, but attracted people who would have bought a new car or truck in November and December to the showroom at the end of the summer. That causes a drought of car sales at the end of the year.

GM isn't the only car company facing a troubling sales picture. Ford posted a net sales decline in October of more than 23 percent.

What does this mean for the company? High benefit costs, an SEC investigation into the company's finances and a dimming sales picture have many analysts questioning GM's ability to survive in its current form. Several firms say the chances that GM will file for bankruptcy are increasing even as the giant company tries to make a turnaround.