Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Did General Motors Company Just Start a Price War?

The all-new 2014 Chevy Silverado is a very good truck, say reviewers. But sales have been sluggish, and now GM is boosting discounts. Photo credit: General Motors Co.

On the one hand, it sounds grim: New-vehicle "inventories", or supplies of unsold vehicles, have risen to the highest levels seen since the recent recession. Meanwhile, the rate of growth in U.S. auto sales has slowed dramatically in recent months.

On the other hand, it's no big deal, say some automakers. Fierce winter weather kept shoppers away from dealerships in December and January, they say, and delayed some fleet deliveries. Ford (NYSE: F  ) said last week that it's confident that those sales will be made up as the weather improves, a sentiment that was echoed at other automakers.

On the other other hand, General Motors (NYSE: GM  ) just boosted its incentives. And that could lead other automakers to follow -- sparking a price war.

GM's disciplined approach has led to discounts. Now what?
New GM CEO Mary Barra, echoing a refrain repeatedly heard from her predecessor, Dan Akerson, has emphasized that GM intends to remain disciplined around pricing. 

GM won't spend freely on incentives in search of market share anymore, Barra and her lieutenants say. GM is focused on improving its profit margins in North America. Especially when it comes to GM's all-new pickups, the days of huge incentives are gone, we've heard.

That's good. That's what GM shareholders want to hear. 

But GM's sales were down 12% in January, and it had a 114-day supply of vehicles as of the beginning of February. (Sixty days' supply is generally considered optimal. It's common for that number to be higher in winter, but over 100 days' worth is worrisome at any time of year.) 

What will GM do? That became clear last Friday, when GM kicked off a Presidents Day promotion. For the next few weeks, GM will offer cash-back rebates of $500-$2,000 on most Chevy, Buick, and GMC models, along with some attractive lease deals. 

Some of the biggest discounts will be on GM's all-new pickups, the 2014 Chevy Silverado and GMC Sierra. The trucks received strong reviews, but sales have been disappointing recently.

News of the promotion came just a day after CEO Chuck Stevens said that GM would "maintain our disciplined approach to balancing supply and demand."

Apparently, that "disciplined approach" has decided that it's time for a big sale. So is it time to worry about GM's profit margins? 

Could a larger price war break out soon?
There might be more to worry about than General Motors.

Analysts have pointed to several signs that the U.S. auto market may be slowing. Despite the average age of vehicles on U.S. roads -- still more than 10 years -- there are reasons to believe that the rush of people who need a new vehicle, the people who have driven the rise in U.S. sales that we've seen since the recession, is largely exhausted.

Morgan Stanley auto analyst Adam Jonas told Automotive News that he thinks the "incremental buyers," those who drive sales increases, are moving away from buyers who need a new vehicle to those who merely want one. 

That means that factors like the availability of credit -- and new-vehicle pricing -- are likely to become a lot more important to auto sales going forward than they have been recently.

GM at least seems to be acknowledging that shift with its Presidents Day discount program. That might help GM's sales totals, but it might also lead automakers like Ford to boost their own incentives.

It could also lead Japanese companies like Toyota (NYSE: TM  ) to cut prices. Toyota reported record profits last week, thanks in large part to exchange-rate shifts that have made dollars worth more in yen terms. While Nissan (NASDAQOTH: NSANY  ) has used that exchange-rate advantage to cut prices and gain U.S. market share, Toyota has so far resisted the temptation.

If that changes, we could see a full-blown price war break out. That would be great for car shoppers, but not so good for automakers' profits. Stay tuned.

Incentives or not, you can save big on your next car or truck. Here's how.
You don't know it yet, but you probably spent $1000s more than you should have on your vehicle. In fact, the auto industry can be such a dangerous place for consumers that our top auto experts are determined to even the playing field. That's why they created a a brand new free report: "The Car-Buying Secrets You Must Know." The advice inside could save you thousands of dollars on your next car, so be sure to read this report while it lasts. Your conscience, and your wallet, will thank you. Click here now for instant access.

Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 10, 2014, at 7:57 PM, Jason87467 wrote:

    Why blame GM when Ford started it? Always pick on GM. In the media's eyes GM can never do any good. Oh! BTW Fords incentives are even higher than GM's.

  • Report this Comment On February 10, 2014, at 8:30 PM, lem2004 wrote:

    Right on Jason the japan auto comp. taking advantage of the low yen are also causing it.But it is all GM'S fault.Not.

  • Report this Comment On February 11, 2014, at 9:02 AM, steffenh wrote:

    Show me proof that GM has raised incentives in Feb above historically average rates? There isn't any...

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2832350, ~/Articles/ArticleHandler.aspx, 9/2/2015 1:19:35 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

John Rosevear

John Rosevear is the Fool's Senior Auto Specialist. John has been writing about the auto business and investing for over 20 years, and for The Motley Fool since 2007.

Today's Market

updated Moments ago Sponsored by:
DOW 16,246.32 187.97 1.17%
S&P 500 1,931.72 17.87 0.93%
NASD 4,694.99 58.88 1.27%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2015 1:04 PM
GM $28.87 Up +0.23 +0.80%
General Motors CAPS Rating: ***
F $13.76 Up +0.04 +0.29%
Ford CAPS Rating: ****
NSANY $17.42 Up +0.17 +0.99%
Nissan Motor CAPS Rating: ****
TM $116.90 Up +2.56 +2.24%
Toyota Motor Corp… CAPS Rating: ***