Dealers say the move will refocus consumer's attention on the product and not the deal.

01:00 AM EST on Monday, January 16, 2006

BY DEE-ANN DURBIN
Associated Press

DETROIT -- As General Motors Corp. tackles one problem, it seems another is always lurking.

GM last week took the unprecedented step of lowering sticker prices on three-quarters of its U.S. vehicles in an attempt to stem its market share losses. Dealers hailed the announcement.

But the news hardly registered at a conference for auto analysts at the North American International Auto Show, where a top aide to billionaire Kirk Kerkorian was outlining additional steps he believes GM must take to return to profitability.

Jerome York told the Society of Automotive Analysts that GM should consider cutting its annual $2 per share dividend in half, which he estimated would save $566 million a year. He also suggested cutting pay for everyone from top executives to autoworkers.

York said Kerkorian's private equity firm, Tracinda Corp., is interested in reacquiring the 12 million GM shares it sold last month for tax purposes and is willing to acquire an additional 12 million if it can get regulatory approval.

"We are optimistic that a path exists for GM to return to prosperity," York said.

GM Chief Financial Officer Frederick "Fritz" Henderson, who attended York's speech, told reporters that any dividend cut would be for the board to decide. He said the company has determined it's inappropriate to set some of the targets that York discussed.

GM was focused on its push to lower prices, which it said is a critical step toward weaning customers from costly incentives.

Mark LaNeve, vice president of sales and marketing for the world's biggest automaker, said the program will lower the manufacturer's suggested retail price, or MSRP, by as much as $2,500 on some vehicles, but the average decrease will be $1,300..

"We want it to be crystal clear that with or without incentives you're getting a great price," LaNeve said.

GM lowered prices on all 2006 and 2007 Chevrolet, Buick and GMC vehicles and most Pontiac vehicles last week, LaNeve said. Saab, Saturn and Hummer will be excluded because GM feels they're already priced appropriately.

In all, the deal covers 57 of GM's 76 models. When the new pricing is combined with another price cut GM took on 2006 models last fall, a total of 66 vehicles -- or 90 percent of GM's U.S. volume -- has been repriced.

LaNeve said GM believes it will make money despite the markdowns because it has new products coming to market and it will spend less per vehicle on incentives, which have sometimes topped $4,000 per vehicle.

York said he hadn't calculated the cost of GM's announcement. The automaker's U.S. sales dropped 5 percent last year, which contributed to a loss of nearly $4 billion in the first nine months of the year.

There is some danger GM could lower prices and vehicles still won't sell. But Chairman and CEO Rick Wagoner said he doesn't expect that to happen.

"We're going to have to be a little patient. We're going to be talking about the great values that are out there every day, and we think that by focusing more on the products we're going to get more people in the showrooms," Wagoner said.

GM has been trying to get away from the expensive incentives it launched after the Sept. 11 attacks. Last summer's employee-pricing plan led to big short-term sales gains, but sales plummeted when the deals ended. Incentives also cheapen brand image and hurt resale values.

Wagoner said incentives aren't going away, but GM plans to use them sparingly.

GM also said the new pricing will make it easier for consumers to compare GM vehicles with competitors on the Internet, where two-thirds of car shoppers now do research. High incentive spending had made it more difficult for consumers to figure out the price of a vehicle.

Under the new pricing a Chevrolet Silverado regular cab pickup will sell for $16,990, down from $19,265. A similarly equipped Dodge Ram is $22,085 and a Toyota Tundra is $19,235, Chevrolet General Manager Ed Peper said.

Toyota Motor Corp. spokesman Xavier Dominicis said the announcement won't change Toyota's pricing strategy because relatively few customers cross-shop between GM and Toyota. Other manufacturers were upbeat.

"We think it's always a good move when the customer focuses on the product and not the deal," George Murphy, senior vice president of global brand marketing at DaimlerChrysler AG's Chrysler Group, said in a statement. "Quite frankly, the U.S. market's gotten a little bit out of control selling the rebates and not the products."

John Rogin, who owns GM dealerships in Michigan and Ohio, said he talked to 15 other dealers and all were pleased. Rogin said he hoped the announcement would take the focus off GM's financial performance.

"There is a financial loss to dealers because our margins will be reduced," Rogin said. "However, we firmly believe our sales volume will increase due to the new pricing structure."