Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : President Barack Obama -- Ignore unavailable to you. Want to Upgrade?

To: stockman_scott who wrote (52459)	3/23/2009 9:43:12 AM
From: ChinuSFO	Read Replies (1) \| Respond to of 149317

Expensive bargains Published: March 22 2009 19:06 \| Last updated: March 22 2009 19:06 AIG is not the only company making questionable use of American taxpayers’ dollars. Away from the glare of congressional hearings, the two crippled Detroit carmakers, General Motors and Chrysler, are cranking up discounts, low-interest financing offers and other promotions in the hope of persuading Americans to buy more of their cars and sport-utility vehicles. Their goal is not so much to make a profit as to keep assembly plants running and maintain market share, thereby helping to convince lawmakers that they are viable businesses deserving of more government aid. Detroit became hooked on incentives after the success of GM’s Keep America Rolling campaign in the aftermath of 9/11. Interest-free financing for up to five years played a big part then in jump-starting car sales and rebuilding consumer confidence. But the carmakers have increasingly realised that incentives are not a solution. Like other addictive drugs, the short-term high is outweighed by long-term damage. As well as hurting margins, habitual discounting drives down trade-in values and damages brand equity. By persuading consumers to buy now rather than later, promotions are typically followed by a period of unusually slack sales, known in the trade as “pay-back”. Until the bottom fell out of the US car market last autumn, the Detroit carmakers had been trying to wean customers off these perks. GM cut sticker prices on 66 of its 76 models in early 2006 as a healthier alternative to disruptive incentives. But in their desperation, the carmakers have returned to their bad habits. Chrysler’s incentives reached a record $5,560 per vehicle last month – about 20 per cent of the average sticker price. That is a 30 per cent increase from January and a jump of almost 60 per cent over a year. GM is preparing a fresh salvo of promotions in the next few weeks to coincide with announcements from Washington of extra aid for the auto industry. It is one thing for companies to cut prices and suffer the consequences when they and their competitors are all playing by the same rules. It is quite another when the businesses in question are being kept alive with public money – $17.4bn between GM and Chrysler so far, with much more to come. By ramping up incentives, the two companies are not only bribing US consumers with their own tax dollars, but also creating a misleading impression of their own viability. Most important, they are delaying the long-overdue but ineluctable consolidation of the North American motor industry. ft.com