This is getting truly ridiculous. On Friday, the world's largest automaker, General Motors
On the one hand, the strategy seems to be working for GM. September sales, when incentives were a bit lower than the recently announced offers, defied analyst projections by jumping 20% over last year's numbers. Now that's impressive -- and it stands in marked contrast to the poor results posted by Ford
Still, this doesn't necessarily mean that GM's incentives are a good idea. After all, $6,000 cash back on vehicles ranging in price from $30,000 to $50,000 translates into discounts of 12% to 20%. That kind of percentage discount would be fine for a company selling Microsoft
Granted, SUV sales are among GM's most profitable ones. They probably make a bit more than 18% gross profit on those sales. But clearly, regardless of what profits are built into the sticker price, if you remove 20% of those profits and rebate them to the buyer, you're going to eviscerate your net margin.
And that's precisely the catch-22 GM has forced itself into here. In order to improve on its profit margin -- which is just one-third the size of the margins sported by rivals Toyota
For more on the great auto incentive wars, read:
- Car Buyer's Market?
- Detroit Downshifts in June
- U.S. Carmakers Sweat Sales
- Detroit's Auto Sales Slowing
Fool contributor Rich Smith owns no shares in any company mentioned in this article.