Home Stocks General Motors Increased Dealer Discounts In June to Boost Sales

General Motors Increased Dealer Discounts In June to Boost Sales

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According an August 1st article in the Seattle Post-Intelligencer, recall-beleaguered General Motors Company (NYSE:GM) began providing extra incentives to its dealers in mid-June to encourage them to buy more cars. Apparently the tactic worked, as GM vehicle sales managed to eke out a 1% for June.

The storyline here is that as of mid-June GM was headed for a year-over-year monthly sales decline, according automotive research firm data. Then, on June 20, the company requested that dealers to buy more cars, and it added an edtra $1,000 in discounts per vehicle, according to five dealership representatives who spoke to an AP reporter.

General Motors’ common industry practice

The dealers said this is a well-known practice used by most automakers to boost sales results. They said General Motors Company (NYSE:GM) asked them to buy the cars for a rental program that offers  loaner cars to customers whose vehicles are being serviced. When dealers purchase vehicles for this program, GM can categorize it as a retail sale.

The June incentive, however, was unusually large, and came as GM is trying to get through the worst safety crisis in the company’s history, including more than a dozen recalls over 18 months and involving 2.6 million cars with defective ignition switches related to 13 deaths. GM execs have been keeping investors from dumping the stock by by saying that recalls have actually helped sales by bringing in customers impressed with the improvement in the new models

Comment from analyst

“Clearly the timing seems a little suspicious,” said Jesse Toprak, senior analyst for Cars.com who projected GM sales would be down 7%or the month, compared with a 2% drop industry wide. “Retail numbers at that point did not show any kind of strength.” The industry squeezed out a 1.2% gain for June.

Car sales were strong overall in July. On Friday, General Motors Company (NYSE:GM) reported that sales were up 9.4% for the month.

Loaner cars

GM spokesperson Jim Cain said that dealers had been offered extra incentives in June, but did not provide any further details. Cain noted GM had to make more vehicles available as loaners for customers whose cars were recalled. However, dealers have run short of cars given the flood of recalls. This meant using rental car companies, which may rent customers vehicles from competing brands.

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