GM’s Taxpayer-Funded Ad Spending Spree

General Motors is certainly finding ways to spend the $50 billion taxpayer infusion they received less than two years ago. Anyone watching the Super Bowl witnessed a heavy GM presence with ads running pre-game, game time, post-game and even during a special Chevy sponsored Glee episode afterwards. The Chevy logo was predominately displayed, sometimes taking up nearly half of the TV screen, during the post game show that featured GM benevolently giving a new Chevy Camaro to Super Bowl MVP, Aaron Rodgers. Rodgers made about $9 million in 2010, but I’m sure he still appreciates the nice car that taxpayers helped pay for.

Ad time during the Super Bowl costs about $3 million for a 30 second spot. During the game, General Motors ran five commercials for a total cost of approximately $15 million. One of the spots focused on the Chevy Volt. Besides disagreeing with the decision by GM to spend $3 million on a 30 second ad for a vehicle that sold 321 units in January, I found another of their commercials to be insulting to senior citizens.

Maybe I am a little sensitive to the treatment of senior citizens by General Motors and the Obama Administration that orchestrated the GM bankruptcy. The reason is that I was a member of a GM bondholder advocacy group whose membership consisted of mostly senior citizen, non-union retirees who had invested in GM bonds to provide for income for their retirements. I lobbied to protect bondholder rights in Washington alongside couples who were in their seventies and eighties. I even watched as an elderly woman nearly collapsed from exhaustion as she tried to walk to meetings with Washington representatives to present her case. Unfortunately, her efforts were in vain as the political pull of non-union senior citizens paled in comparison to the weight carried by the politically powerful UAW. So when I see an ad by GM that mocks a group of senior citizens in a nursing home for not being able to hear a GM commercial they are watching, I fail to see the humor.

Beyond my distaste for the above mentioned ad, I find it perplexing that General Motors continues to spend millions of dollars hyping the Chevy Volt. This is a car that, according to Consumers Reports, goes about 33 miles on an electric charge (less in cold weather) and then averages 30 MPG thereafter. On top of that, it requires premium fuel! I fail to see how these statistics warrant the hype the vehicle has received, especially considering the hefty price tag of about $42,000. Nor do I see that it warrants a taxpayer funded subsidy of $7,500 per vehicle. While GM CEO, Dan Akerson, claims the Volt is the future of GM, the fact remains that this is a niche vehicle with limited sales potential. Assuming sales of the Volt increase 50% in February they will sell approximately 500 vehicles. Calculating the cost of just one 30 second Volt ads at $3 million we come up with about $6000 spent in marketing dollars on each vehicle sold in February. And that is just a fraction of what is being spent marketing the Volt!

Of course there are other reasons General Motors may be spending a disproportionate amount of money hyping the Volt. There is an old car sales philosophy that if you can get interested car shoppers in to showrooms, salespeople will be able to “bait and switch” the potential customer in to buying an alternate vehicle. In GM’s case, that would make sense since they lose money on every Volt sold. I personally do not agree with the marketing strategy and think GM would be better off focusing on developing a quality pipeline of models rather than focusing on marketing, as Mr. Akerson says he wants to do.

In addition to the “bait and switch” explanation for the Chevy Volt hype, there is the fact that the US government remains the largest owner of GM. A politically driven campaign to appeal to the environmentally conscientious crowd plays right in to the current administrations philosophy. If you are a GM investor, this might not be the most promising model for future profitability. We are years away from a plug-in hybrid vehicle like the Chevy Volt becoming mainstream. For now, GM is focusing on urban markets to pitch the Volt. I find this to be yet another example of GM’s marketing team lacking logic since most city dwellers don’t have garages and outlets to plug their Volts in!

General Motors Super Bowl ad blitz comes on top of a January sales incentives increase of 16%. When the news of the increased spending hit last week, GM shares saw an immediate negative reaction. This occurred in spite of relatively strong sales numbers. Analysts asked hard questions during a sales conference call. The concern is that GM is reverting back to bad old habits of heavy spending to drive sales. The old saying of “we lose money on every sale but we make up for it in volume” may become the edict at GM. With this type of philosophy, it will not be an indefinite time frame before GM burns through the taxpayer money it has been entrusted with.