Thursday, July 23, 2009

Perils of New-Vehicle Rewards

After getting an oil change yesterday, I found that I had become an honorary Ford owner.

The Ford dealership where I got the service done handed me a membership card that reads, “Ford Owner Advantage.” It seems I qualify for this customer rewards program even though I do not actually own any Ford vehicles.

The attention-getting aspect of the program is the possibility of getting a discount on a new vehicle purchase. In this way, the program is similar to the disastrous GM Card program, which lets General Motors customers get new-vehicle discounts. But when I read the fine print, I found that the Ford new-vehicle rewards were nowhere near as costly to Ford nor as damaging to its reputation as GM’s have been.

For one thing, you can’t accumulate rewards for a new-vehicle discount. Only vehicle purchases qualify for discounts on future vehicle purchases, and only at the same dealer, and you have to keep your rewards active by purchasing parts or service at that dealer at least every 18 months. That’s a striking contrast to the GM Card program, which allows ordinary credit card purchases to accumulate toward new-vehicle discounts.

When I checked on the GM Card, I was a little surprised to find that a scaled-back version of the rewards program is still going on. The GM bankruptcy seemingly gave GM the perfect opportunity to publicly discontinue a program that had such a prominent role in pushing it toward bankruptcy. The rewards program has been modified over the years so that it isn’t so expensive or rewarding, but there has been no big announcement, so car buyers who don’t have a GM Card may not realize this.

I have to imagine that GM doesn’t realize how much the GM Card rewards program has hurt its image. Certainly there are positive aspects to the program — Americans are still suckers for big discounts, so it’s a way to get them to take a close look at what you have to offer — but look at the negative impressions it makes (especially for consumers who mainly remember the original GM Card promotion from years ago):

  • that GM vehicles are gimmicks that you get as credit card rewards, rather than products that can stand up in their own right
  • that if you aren’t a rewards program member, you probably shouldn’t buy a GM vehicle, because you’ll have to pay $1,000 extra
  • that GM probably has to bump up the prices of all its products to pay for such an expensive rewards program
  • that people who buy GM vehicles are people who don’t know when to stop spending
  • that GM vehicles are especially hard to pay for (that’s the impression you get if you really go for the program and have to make the loan payments on your GM vehicle purchase at the same time that you are struggling to pay off your mountain of credit card debt)

It would have made a lot of sense if GM had very publicly killed the GM Card rewards last month as part of a broader campaign to tell people, “Today’s GM products are strong enough to stand on their own.” The bankruptcy would have given it extra leverage to modify its contracts with the card issuers, HSBC and Chase. It will likely get another chance, as banks are having second thoughts about credit card rewards, but the changes won’t have the public impact that they could have had last month when GM was in the news.

Is there any chance that GM’s rewards problems will rub off on Ford? It doesn’t look like it. Ford Owner Advantage is being promoted as a fluffy, feel-good idea and something that will make you like your participating Ford dealer better. It doesn’t commit to any rewards percentage, and it’s good only for continuing customers of the same dealer, so it’s hard for customers to think of it as something they can invest in. The program is limited enough, and its presentation vague enough, that Ford can have a rewards program without having it cheapen the Ford nameplate.

It is another example of the way Ford is avoiding the potholes that seem to be plaguing Detroit lately. It’s almost as if Ford has a stay-out-of-trouble department that fixes whatever bad ideas the company has before they turn into dumb mistakes.