The Wall Street Journal article GM to End Employee-Discount Program outlines GM's latest development.
General Motors Corp. said it plans to end its successful "employee discounts for everyone" promotion next week. The company also signaled that it will embark on a new pricing strategy for 2006 models that will attempt to focus on permanently lower sticker prices instead of big rebates.
"It is our intention to end the employee-discount program on August 1," GM spokesman Jeff Kuhlman said yesterday. After two months of strong sales, inventories of unsold GM vehicles are at such low levels that the company doesn't have enough vehicles in stock to continue the program.
We see GM is going to abandon its discount program in favor of permanent lower prices. I don't put much stock in GM's assertion that it is running out of cars. Granted, I am sure that the program lowered inventory tremendously. However, the extremely low prices were also destroying profits. So now that the inventory issue has been addressed, GM is now going to try to raise prices and, it hopes, profits. But consumers is addicted to low prices, just as crack heads are addicted to crack.
Given GM's labor situation where it must pay laid off workers till the contract expires, Wagoner has little choice but to keep the factories humming, even if at just break-even. CNN article GM to cut 25,000 jobs by '08 states:
GM's UAW contract essentially forces it to pay union employees during the life of the contract even if hourly workers are laid off and their plants are closed. But those protections only run through September 2007, when the current four-year pact with the union ends.
I expect prices to remain low as Wagoner fights for concessions from the union. And I expect profits to remain elusive as low prices continue to remain the norm.
I remain short GM shares.
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