Is GM Raising or Lowering Prices?
Apparently, it’s both. Or, maybe it depends on whom you ask.
Yesterday, Mark LaNeve (pictured), GM’s top sales executive in North America, told the press at the New York Auto Show that GM would be “aggressive” in using incentives to keep sales volume at projected levels.
But, today the audience is different, the speaker is different, and the message is different.
But the word “aggressive” is the same.
Tom Henderson, GM’s Chief Financial Officer, today told a conference call of stock market analysts that GM may raise prices on some vehicles.
(more after the jump)
He said the company would be “aggressive in our pricing,” referring to increasing prices to offset increased costs in production of vehicles. As an example, he said the company had actually raised prices by 1.5% at the end of the past year to offset higher raw material costs.
So, which is it?
While the two statements are not directly contradictory – GM can raise prices on some models and reduce them on others – the two statements seem very dissonant.
Henderson claimed that GM still anticipated industry-wide sales of more than 16 million vehicles in 2008, a figure more than 1.5 million vehicles above the most recent estimates of many outside experts. Henderson conceded, however, that GM was postponing capital spending projects not related to product development to the second half of the year, where possible, in order to conserve cash. Whether such projects will be further postponed, he said, depends on how sales develop between now and then.
Henderson, of course, is responsible for keeping the financial markets happy. At the moment, with GM stock languishing at the lowest level in the last two years, he’s facing a skeptical audience.
On the other hand LaNeve is the classic car sales guy, one who started out as a zone rep in – of all places, Montana – and has worked his way up the corporate ladder to the top spot. He is perhaps the one top executive at GM that most seems like the stereotypical car salesman, but it doesn’t take very long conversing with him to come to the realization that he is also very, very bright.
He was also probably telling the dead honest truth in New York. GM is not about to let the coming downturn in car sales further erode its market share. Though no car company can last forever without profits, profits cannot exist if market share evaporates. Market share is crucial to volume and, in the last analysis, volume is what creates profits.
Henderson appears to have been playing games with the analysts, perhaps telling them what they wanted to hear and, technically, telling them the truth.
But, what GM charges as the price of a car is not what that car costs, nor what a dealer pays for it. One of the major moves made by LaNeve in the past year to buttress GM’s market position was a change in the way GM reimburses dealers for the interest which dealers must pay on their unsold new vehicle inventory. In effect, GM substantially increased its reimbursement payments to dealers, which has the effect of decreasing the dealer’s actual cost for the car.
In other words, GM might marginally increase the cost of a car to the dealer, but absorbing more of the dealer’s cost for carrying that car in inventory until it is sold is an easy way of, in effect, lowering the price of the car without seeming to do so.
General Motors raising prices in a down market.
Who’s Henderson kidding?