Prices at the pump have sent sales of larger vehicles into a tailspin in recent months. Now, General Motors (NYSE: GM ) has adopted a novel plan to tackle the problem. However, the vehicles included in the promotion indicate that the problem at GM has more to do with design than gasoline costs.
GM announced yesterday that consumers in Florida and California who purchase certain 2006 and 2007 vehicles by July 5 will be reimbursed by the company for gas purchases so that they will pay only $1.99 per gallon for a full year. The catch is that owners have to agree to enroll in the company's OnStar service so mileage can be monitored and the company can credit the buyer appropriately.
Of course, the gas promotion, while creative, is just another incentive. Analysts rightly cite these giveaways as hurting profitability at GM, as well as at competitors Ford (NYSE: F ) and DaimlerChrysler (NYSE: DCX ) . Such deals are also hard habits to break, as they provide people with an incentive to wait for generous offers before buying.
Still, perhaps GM could be forgiven to some degree in this case. The company will be offering a new hybrid option in large SUVs as a way of addressing higher pump prices, but in the meantime, current gas guzzlers have to be moved off dealers' lots.
But the puzzling part of the new incentive is the vehicles included. In California, in addition to covering heavy trucks like the Chevy Tahoe and Suburban, the cheap gas deal also encompasses the Pontiac Grand Prix and the Buick Lacrosse sedans. In Florida, several sedans are included: the Impala, Monte Carlo, Grand Prix, and LaCrosse. These models aren't in the same league as trucks when it comes to fuel economy. All of them are rated at 30 miles per gallon or more on the highway, so it hardly seems like gas prices should be as big an issue.
In fact, it's likely that these vehicles aren't selling as well as GM hoped, and the reason is that consumers just aren't interested in what the cars have to offer. This is particularly bad news because the Impala, Lacrosse, and Monte Carlo were all redesigned for the 2006 model year. For GM, the lesson should be clear: If it wants to wean itself off of incentives, its new models have to be bold and compelling.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.