The tide goes back out…
In a 2011 interview, Bob Lutz summed up the product philosophy that guided the product turnaround GM had hired him to lead as follows:
The product development guys, whether at Ford, BMW, Chrysler or GM, liked my leadership because I insist on good rather than cheap. And it’s definitely paid off. The average transaction prices of GM cars are up so much it more than offsets, way more than offsets, the maybe thousand bucks I put into the vehicle.
Lutz’s argument, that it is better to buy market share by investing in quality than by discounting, is unassailable in the abstract and absolute catnip for car writers (myself included, at the time). And given the profound mediocrity of GM’s products before Lutz joined GM in 2001, it’s impossible to argue that his philosophy hasn’t had some kind of positive effect. As Lutz pointed out, GM had seen transaction prices rise throughout his tenure… but that trend appears to have turned.
CarsDirect reports that GM has quietly launched new cheaper base models of some of its best-selling cars. Those rising transaction prices are coming at the expense of market share, which GM lost .2% of through Q3 of 2014, and these low-cost stripper models show that GM’s current leadership is willing to go against The Word Of Our Lutz to turn around a half-century of US market share decline.
The problem is that Lutz’s strategy was the only choice after GM’s traditional “more for less” strategy ran its course. In 2007 Lutz argued:
“If in ’06 we had continued with the damaging sales and marketing practices of ’03 and ’04, we would have had probably 2% more market share, easily. We would’ve continued with lease pull-aheads, excessive leasing, excessive daily rental sales, excessive employee sales and we would be doing further damage to our reputation and resale value.”
Eight years later, GM is headed back in the direction that Lutz pulled them away from. Even if these new low-cost trim levels aren’t used to pump volumes into fleets, they will be used as low-price come-ons and still represent a critical surrender in Lutz’s crusade to command higher pricing. From Cadillac, which has already gone against its new boss’s vow not to cut prices, on down GM’s pricing discipline is going out the window… and with it the dream of rebuilding lost “brand equity.” Meanwhile, with GM’s incentives still at industry-leading highs of more than $3,500 per model according to Edmunds, the firm’s list pricing –not to mention Lutz’s high-margin utopia– is still a long way from reality.
