How GM Manipulated June Sales Figures with Dealership Incentives

chart downThe Associated Press gives evidence today to how desperate General Motors is to give the appearance that the company is firing on all cylinders. GM pulled out all the stops to ensure that June sales would not disappoint when sales were slowing as a result of the company’s loss of credibility during its seemingly never-ending recall saga.

At mid-June, sales for the month at GM were lagging the previous year’s. The political minds at GM could not have this, and according to the piece:

In mid-June, however, the automaker was headed for a year-over-year monthly sales decline, according to data compiled by automotive research firms. Then, on June 20, GM asked dealers to buy more cars, and it threw in another $1,000 in discounts per vehicle, five dealership representatives told The Associated Press. The company finished the month with a 1 percent gain.

The dealers said they were asked to buy the cars for a rental program, one that provides loaner cars for people whose vehicles are being serviced. When they buy the cars for the program, GM counts them as a retail sale. It’s a longstanding practice used by nearly all automakers to boost sales results.

At GM, though, the incentive was unusually generous and came as GM executives try to steer the company through the worst safety crisis in its history, including the recall of 2.6 million small cars with defective ignition switches tied to at least 13 deaths. The company has allayed investor fears by saying that recalls have actually helped sales by bringing in customers who see vastly improved new models.

“Clearly the timing seems a little suspicious,” said Jesse Toprak, senior analyst for the website who predicted on June 22 that GM sales would be down 7 percent for the month, compared with a 2 percent decline for the rest of the industry.

GM has had a history of sacrificing profits to drive sales with higher incentives. The company has been accused of using shady tactics to prop up inventory levels at times to bolster revenue numbers, as well. The NY Times addresses the increasing incentives in a story it published yesterday and states:

Since G.M.’s safety crisis began to mount in the spring, the automaker has piled on cash incentives and cheap lease deals to invigorate sales of its passenger cars, particularly the smaller models, joining what some of its competitors have been doing as well.

Take the compact Chevrolet Cruze, G.M.’s top-selling car model and a prime example of the improved quality and styling the company has striven for since its bankruptcy and $49.5 billion government bailout five years ago.

While sales of the Cruze started the year strong, they dropped nearly 21 percent in June. And as sales have slipped, G.M. has responded by adding discounts of about $2,700 a car – a 45 percent increase from a year ago.

The company is being very aggressive on the lease side, offering three-year leases for $159 a month, with about $2,400 due at signing.

Of course, the company has some help with offering discounted leases, as most are funded by cronies at Ally Financial, the bank formerly known as GMAC before its government takeover.

The manipulation of sales figures for June does not surprise me. I know that this company will sink to any level to give the appearance of success. That was evidenced by the long-running excuses and misrepresentations for the over-hyped Chevy Volt. GM most recently has apparently taken a strategy of recalling millions of vehicles with low-cost remedies to help drive dealership traffic while allowing dangerous trucks with corroding brake lines to stay on the roads, as reported numerous times here. GM boasts that it is now very concerned with safety as millions of cars are recalled to put in plastic key inserts or tighten loose bolts on seats while it says two-ton Chevy Silverados with rusted brake lines (that are only six or seven years old) are perfectly safe and owners should pay the hefty costs to replace the brake lines.

If GM continues to spend heavily on incentives (along with other ludicrous strategies such as focusing on green vehicles that cost shareholders money like the Chevy Volt and Cadillac ELR) the future is not as bright as manipulated sales figures would have you believe. In fact, at a time when US auto sales figures are near all-time highs, GM operates at thin margins with an operating loss at the auto division. Debt continues to grow and the company is not prepared to survive an extended economic and industry downturn.

When that time comes, as increasingly seems inevitable, all the legal advice, skilled spokespeople, and political-style spin will not save GM.

Mark Modica is an NLPC Associate Fellow.