THE AUTOEXTREMIST

March 9, 2011

GM lets the Incentive Genie out of the bottle as Detroit’s Marketing War heats up.

By Peter M. De Lorenzo

(Posted 3/8, 1:00 p.m.) Detroit. I knew it would come to this. Fueled by mounds of cash and unshackled from their debt burdens in the aftermath of the bankruptcies, GM and to a lesser degree Chrysler are starting to wreak havoc in the marketplace as they dip into their war chests, taking aim at the competition, Toyota and Ford in particular.

Let’s take a look at the players and what’s at stake here.

Besides spending staggering amounts of advertising and marketing money on the launches of the Chevrolet Cruze and Volt (and looking warily over its shoulder at Hyundai), GM has been playing the “targeted incentives” game, which is a polite way of them saying, “we’re not just going to bury the market in incentives with no rhyme or reason this time like we used to do, we’re going to only use the money as needed depending on market conditions and the products in question.”

But it’s funny, because though GM’s honchos can rationalize what they’re doing in the market any which way they want to spin it, the American consumer doesn’t distinguish between “targeted” incentives and just plain old cash on the hood (or added into a lease payment or in the extended years making up the lengthy financing options). To the American consumer GM has sent the unequivocal message that “the deal” as a marketing tool is back, and GM’s actions threaten to taint the entire domestic auto industry all over again, just when its fragile recovery is still very much in play.

Not that there’s anything wrong with incentives necessarily, it’s the price of doing business in almost every industry these days, but the reality for Detroit and especially GM is that by letting the Incentive Genie out of the bottle at this point in time the danger – proven historically over and over again in this business – is that once you do it you can’t get consumers to pay attention without it.

Speaking of historical context, after 9/11 GM unleashed wide-ranging incentives at the end of that year calling it the “Keep America Rolling” campaign, and at that point in time in the country’s history it was the right thing to do. People went nuts, the other car companies chimed in and vehicle sales exploded. But in the midst of that frenzy GM marketing operatives started to look beyond the year-end clearance nature of that sale and started to believe that they could actually use incentives to roil the market and bury its competition. And in one fell swoop a short term, year-end marketing ploy became part of GM’s fundamental marketing strategy.

And that decision had dire, long-term consequences for GM and the industry itself.

First of all, any notion of product integrity or relevance to the competition’s products went right out the window. Once GM embarked on their “we’ll bury the competition with our incentives” strategy the American consumer zeroed in on “the deal” and that was it. Even if there were worthwhile cars and trucks coming out of GM (and there were a few) it didn’t matter, because GM had established the fact that if you were just looking for a deal, you looked at the American automobile companies. And if you wanted something more – like quality, style, resale value, etc., etc. – you looked elsewhere.

That’s why when GM started to juice their incentives at the end of last year, and kept pouring them on in the first two months of this year, you could hear the collective cringe reverberate throughout the rest of the industry. The industry had been down this road before and had learned the hard way that it never ends well.

The Incentive Genie cheapens the brands, it negatively impacts the resale value to an insane degree, and it leaves the consumer with nothing to go on except the deal, brand image be damned.

As a matter of fact this incentive game played a crucial role in the bankruptcies of two of the Detroit 3 including, of course, GM. So to say that the industry was less than pleased with GM’s recycled incentive strategy was an understatement to put it mildly.

To me it suggests that GM isn’t “targeting” anything with these incentives. Instead, it smacks of short-term thinking and decisions made by executives who haven’t been around this business long enough to know better. And in fact CEO Dan “Lt. Dan” Akerson and CFO Chris Liddell haven’t been to the circus long enough to know what happens when you go down this road. That’s plainly obvious. They only know about short-term performance and what will look good to Wall Street.

The return of short-term thinking doesn’t bode well for GM. They’re going to play this incentive game apparently, until they get burned, but in the meantime they’re in danger of tainting the entire domestic automobile industry with that dreaded “deal” moniker again, and if that happens, everyone loses.

And what to make of Chrysler?

They’re just now starting to churn their way through a dramatic increase in spending, but to what effect? The buzz from the Super Bowl spot is a distant memory now, no matter how many Detroit-centric T-shirts their dealers sell. With marketing genius – just ask him, or ask his sycophants in the press – Olivier Francois throwing anything and everything up against the wall to see what sticks, a one-shot hit like the Super Bowl spot is bound to happen. But frankly the rest of the Chrysler/Dodge/Jeep stuff is eminently forgettable and getting lost in the shuffle, and oh how Sergio and his “boy” Francois loathe getting lost in the shuffle. They’re better and smarter than everyone else, or didn’t you receive your memo anointing them as such?

Look for Chrysler to make more noise whenever possible, but there are no guarantees they’re going to make any market headway with this strategy. And make no mistake: they’ll use their war chest to play the incentive game as well.

And with the Fiat 500 launch threatening to dissolve into a cacophony of fits and starts at any moment (yes, the “first-on-the-block I gotta have one” types will get their fill, but beyond that, uh, it’s a work in progress, at best), Chrysler’s marketing path remains a giant “we’ll see.” Plus, at the end of the day it’s the next generation Chrysler-Fiats on the “blended” platforms that will determine the company’s success, no matter how much bluster Sergio generates.

So where does that leave Ford? Even though they’re royally pissed-off at the short-term thinkers down at the RenCen they’re staying the course, keeping their heads down and focusing on what matters, and that is product, product and more product, supported by smart marketing that actually treats consumers as having a modicum of intelligence. What a concept.

Will GM take the rest of the Detroit-based Three down with their targeted “scorched earth” incentive policy? I don’t believe so, no.

They might severely damage themselves by doing it but I’m betting that as long as American consumers are perfectly capable of discerning quality and value for themselves, they will ferret through the Genie-generated white noise revolving around “the deal” and discover that there are some excellent products worth considering on their own merits from all three of the Detroit-centric manufacturers.

If not, well, just when you thought the Detroit Three had pulled away from The Abyss, the Incentive Genie will send Detroit reeling to the brink all over again.

That would be a giant bowl of Not Good.

And that’s the High-Octane Truth for this week.

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