Thursday, October 14, 2010

The GM Card and Other Problems at General Motors

If there is anyone who still imagines that General Motors Company has set itself up to succeed, they need to see this envelope.

advertising envelope

It arrived in Tuesday’s mail, ironically while I was out on a car-shopping trip. It’s an offer for the newly re-launched GM Card. Yes, believe it or not, General Motors and its banking partner are still promoting the GM Card as the way to buy a car, and they are still talking about “5%” as if that were the discount you could hope to get on the car you buy.

This heavily-promoted credit card rebate program was supposed to boost sales, by encouraging credit users to buy General Motors cars. Instead, sales declined. Sales declined among cardholders — there is a strong incentive to postpone the purchase of a General Motors car for another year, in the hope of accumulating a larger rebate allowance. Sales also declined among non-cardholders — the message is that you may pay 5 percent extra to buy a General Motors car outside the rebate program. If that misinterpretation of the rebate program has stuck in consumers’ minds, it is because it is basically true — comparable cars from other manufacturers do cost about 5 percent less.

Now, of course, many consumers have sworn to stop using credit cards and to get away from the financial lifestyle of excess that credit cards have come to represent. The GM Card serves to suggest to people, or perhaps remind them, that General Motors vehicles and General Motors Company itself are part of this pattern of financial excess.

If General Motors thinks the GM Card works, it could be the result of what Nassim Nicholas Taleb calls the silence of the graveyard. In any sales promotion, dealers hear from the customers who like or tolerate the promotion. They never hear from the potential customers who are offended or scared away — surely a much larger number in the case of the GM Card. Focusing only on the successes and disregarding the failures, it is easy to imagine a success rate that has no connection with what is occurring in reality.

The GM Card is out of touch with the spirit of the times and with the financial challenges that General Motors faces. Unfortunately, that is a pattern found in most of the news coming out of General Motors. It has been backing out of deals it desperately needs, serially postponing and downsizing a planned stock offering, and now, falsely promoting its plug-in hybrid Volt as an electric vehicle (check for the gas cap before you buy). It’s a picture of a company buying time rather than finding a way forward.