Like any good car salesman, Detroit does not take no for answer. US car makers marshal all sorts of ruses to persuade reluctant drivers to buy. These range from sales drives – called “events” these days to lend the process of flogging metal a touch of grandeur – to leasing, the financing wheeze that enables burger-flippers to pimp their otherwise mediocre ride.
There is more to General Motors’ latest round of incentives, however. Its offer to regular buyers of employee discounts on a range of new cars and extended warranties on used vehicles reflects sector-wide woes. Americans are rethinking their love affair with vehicles that look impressive but have the efficiency of an oil fire. However, swapping that SUV for a compact is pricey when the trade-in value for gas-guzzlers is falling because of high pump prices. The credit squeeze does not help. Detroit’s big three have all curtailed leasing to preserve cash and reduce the risk posed by volatile resale values. In swapping money out of leasing and into discounts, GM helps bridge the gap between what struggling drivers seeking lower fuel bills can pay and what dealers can afford to give them. Apart from the Cadillac CTS, all the 2009 models eligible for employee discounts enjoy relatively high miles per gallon.
It is a sensible response but will not calm fears about GM’s balance sheet. In this respect, 2010 is the crunch year. With a $7bn cash payment into an employee trust due then, GM will either need to renegotiate with unions or bank on a recovery, asset disposals or external financing.
The crumb of comfort is that GM still has some time and options to see through the slump. It may also have its eye on what happens in November. There has been talk of a government bailout for the car industry, stoked no doubt by Freddie Mac’s and Fannie Mae’s situation. A direct bailout, however, looks far off: GM is iconic, but not central to the economy. But help can take many forms. A president willing to extend subsidies to consumers to switch to green cars – the plug-in Chevy Volt, say – and reform healthcare could address two of GM’s biggest headaches at a stroke.
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