Editor's note: This article has been modified to reflect the fact that GM buyers may receive cash back in addition to the employee discount. A previous version had indicated the promotions were mutually exclusive.
GM (NYSE:GM) has endured its share of rough times in the course of the past year, compelling many industry experts to question the future of the automaker. The company announced a first-quarter loss of $1.1 billion. Rating agencies downgraded the bonds, causing instability in the credit markets. Oil prices surged. And, to top it all off, the company faces an ever-growing pension obligation imbroglio that's unlikely to subside.
Well, rumors of GM's death may have been exaggerated. Company execs wasted little time in making gutsy decisions, and one of them -- the employee-discount marketing campaign -- may turn out to be brilliant. In fact, rival domestic automakers Ford (NYSE:F) and Chrysler (NYSE:DCX) thought enough of it to launch similar campaigns. In terms of top-line impact, the results were startling, making GM look more like Google than an ailing auto company. (OK, maybe that's going too far.) But sales did skyrocket 41% in June.
And it makes sense. It creates buzz. It gets customers into dealerships. That is, customers look at vehicles they never really considered buying -- such as a Buick, Chevrolet, or Pontiac. Car site Edmunds.com reports that other automakers -- such as Chrysler, Ford, Toyota (NYSE:TM), and Honda (NYSE:HMC) -- lost market share to GM during June.
But let's look at the bottom line. Is GM doing serious damage to profitability by using this low-price strategy? Not necessarily. Fist of all, they're still feeding their profit machine, GMAC, which counts for a lot. They're getting people into GM dealerships and getting people familiar with GM cars (let's hope that's a good thing). And GM's total discount spending hasn't risen terribly since it instituted the plan. To quote a recent Wall Street Journal article, " In effect, GM repackaged its old deals to offer the employee discounts without spending that much more overall."
Meaning all those GM cash-back and incentive plans we used to hear so much about are still there. Sort of. Sometimes. For instance, Kiplinger's website indicates a below-invoice price on a Buick LaCrosse, plus either $1,000 cash back or low-rate financing (Kiplinger's does indicate that these freebies vary by region). The site mentions no cash back on a Cadillac SRX, but up to $3,000 back for GMC Yukon buyers financing through GMAC.
The buzz among industry experts seems to be that on popular GM models (they do exist) dealers were loath to discount before, buyers benefit. Less so on unpopular models -- which dealers may have dipped deeper into their own margins to unload before. But the consumer does get a no-haggle policy. And GM gets much-needed volume, which should help out in the fixed costs department, and, of course, with financing.
So, maybe GM has done something smart -- instituting a revolutionary marketing campaign with the potential to increase sales and profits.
Fool contributor Tom Taulli does not own shares mentioned in this article.
