Lions3
11-30-2005, 12:58 PM
I came up with this idea after hearing people say that even though GM is losing money, they would still be able to operate for many years due to the amount of money in their bank account.
The question I have is this: How feasible would it be for GM to start selling entry level vehicles at a loss in North America for a few years?
What I was thinking is that the money they lose on each vehicle could be used to put much more content into their vehicles. I'm not talking about making the SS versions the same price as the entry level variant. What I'm talking about is taking the entry level version, putting double the effort (At maybe what, 30-40% more cost?) into fit and finish and making hardware rock solid. I mean how far could 500-1000$ of retail loss go towards R&D and assembly costs per vehicle? From the beginning of the design process, they come up with an estimated retail price. Say they design a car that after all said and done should have a dealer invoice for 30,000$, what real harm would be done if they sold it for say 27,000$?
I think they could offset the costs by offering no discounts/rebates on SS/V variants, maybe charing 2-5% more for options. This would also go hand in hand with forcing dealerships into a value pricing strategy, so they can't sell the vehicles for what the used to sell for and just make more profit on the retail end. Also any loss on any vehicle can be labeled a loss leader, and written off come tax time.
Take this plan, use it for a 3-4 year period, and then slowly start increasing the cost of each vehicle as they get redesigned or when new models come out to eventually make profit again, while still offering world class build quality.
I got this idea from a couple experiences. One is that it is common practice in retail to build clientel by offering steep discounts on your first sale, and then as time goes on offer them a more reasonable discount. People will buy on value over trust any day. Why do you think when new retail stores open, they always have a "Grand opening sale!"?
Second is looking at what most upstart companies have been doing in the automotive world. How long has it been that Hyundai has had a car over 30,000$? Within the last few years the price of their vehicles has jumped up dramatically, all the while they are gaining market share. Reel 'em in with cheap, decent, reliable cars (Or advertise a 10 year warranty), and then a few years later reel 'em in again with more content and make more profit on more expensive cars.
I know this may get shot down right quick, but it's a thought. I see it as a possible way to gain market share and public acceptance again, and then go on a rampage 10-15 years from now with future vehicle development. Possible flaws I see in this idea is that for every dollar they lose on every vehicle they sell, there goes a dollar that should go to pay costs (R&D for future vehicles, wages, pensions etc etc) compounded by the fact that even with the market share they have now, and even though it won't be for ALL vehicles they sell, that's still a lot of cars to be losing money on.
The question I have is this: How feasible would it be for GM to start selling entry level vehicles at a loss in North America for a few years?
What I was thinking is that the money they lose on each vehicle could be used to put much more content into their vehicles. I'm not talking about making the SS versions the same price as the entry level variant. What I'm talking about is taking the entry level version, putting double the effort (At maybe what, 30-40% more cost?) into fit and finish and making hardware rock solid. I mean how far could 500-1000$ of retail loss go towards R&D and assembly costs per vehicle? From the beginning of the design process, they come up with an estimated retail price. Say they design a car that after all said and done should have a dealer invoice for 30,000$, what real harm would be done if they sold it for say 27,000$?
I think they could offset the costs by offering no discounts/rebates on SS/V variants, maybe charing 2-5% more for options. This would also go hand in hand with forcing dealerships into a value pricing strategy, so they can't sell the vehicles for what the used to sell for and just make more profit on the retail end. Also any loss on any vehicle can be labeled a loss leader, and written off come tax time.
Take this plan, use it for a 3-4 year period, and then slowly start increasing the cost of each vehicle as they get redesigned or when new models come out to eventually make profit again, while still offering world class build quality.
I got this idea from a couple experiences. One is that it is common practice in retail to build clientel by offering steep discounts on your first sale, and then as time goes on offer them a more reasonable discount. People will buy on value over trust any day. Why do you think when new retail stores open, they always have a "Grand opening sale!"?
Second is looking at what most upstart companies have been doing in the automotive world. How long has it been that Hyundai has had a car over 30,000$? Within the last few years the price of their vehicles has jumped up dramatically, all the while they are gaining market share. Reel 'em in with cheap, decent, reliable cars (Or advertise a 10 year warranty), and then a few years later reel 'em in again with more content and make more profit on more expensive cars.
I know this may get shot down right quick, but it's a thought. I see it as a possible way to gain market share and public acceptance again, and then go on a rampage 10-15 years from now with future vehicle development. Possible flaws I see in this idea is that for every dollar they lose on every vehicle they sell, there goes a dollar that should go to pay costs (R&D for future vehicles, wages, pensions etc etc) compounded by the fact that even with the market share they have now, and even though it won't be for ALL vehicles they sell, that's still a lot of cars to be losing money on.