Much of the internet chatter and news stories about General Motors in the first quarter of 2014 dealt with one of two topics: the new C7 Corvette Stingray or the ignition switch controversy. Apparently, the company has started to look for ways to make people forget about the controversy and has taken the radical step of offering people $100 to test-drive a Cadillac.
GM’s Difficult First Quarter
Many of the news pieces about General Motors in the first few months of 2014 have been about a massive recall from the company due to a dangerous problem with the ignition switches on some of the company’s vehicles. As of April, at least 13 deaths had been blamed on the switch issue, according to news company National Public Radio (NPR).
The CEO of GM, Mary Barra, testified in front of congress about the ignition switch issue very quickly after the news broke. This attempt to face the problem head-on rather than creating excuses and a smokescreen about it was a surprising move, according to industry insiders.
According to CNN, the CEO said to Congress, “Today’s GM will do the right thing,” which seems to have reduced the financial impact of the controversy. However, another article on CNN suggests that the profits for GM for the first quarter would be virtually wiped out by the costs associated with the recall.
CNN reported that expected GM to post first-quarter profits of just $108 million due to a repair and recall cost of $1.3 billion for the faulty ignition switches.
Automakers Rely Upon Luxury Profits
As reported by financial website The Motley Fool, one of the reasons for the $100 test-drive is the amount of money the company would make on each new sale of a luxury vehicle. To put luxury vehicle profits into perspective, The Motley Fool cites the profits Volkswagen enjoyed in 2013 versus those of GM.
Although VW and GM each sold about the same number of vehicles, Volkswagen’s profits were over double those of GM because of the number of luxury-priced vehicles sold by Volkswagen in 2013 (note that Volkswagen sells Porsche and Audi vehicles, which is where it makes all its money).
Clearly, GM hopes to emulate companies like VW and other automakers with luxury brands with hefty sales of Cadillac cars and SUVs. According to PickupTrucks.com, GM sold 480,414 Chevrolet Silverado pickup trucks in 2013, but just 1,972 Cadillac Escalades. GM’s profits would soar if it sold more Cadillac SUVs in 2014.
$100 for Test Driving a Cadillac
News repository Click-On Detroit described the Cadillac promotion as one where customers would receive a $100 gift card after test driving a Cadillac. According to the article, one of the reasons for the promotion is the belief from GM that just walking into a showroom that’s full of beautiful new cars is enough to get someone excited about buying a new vehicle.
The test-drive isn’t open to just anyone. Drivers must be over the age of 21 and own a non-GM vehicle that’s newer than 2004. The $100 is also delivered in the form of a prepaid Visa gift card, rather than a shiny new “Benjamin.”
Click On Detroit reports that GM is also offering a bevy of other attractive rebates to drivers.
A representative from a Cadillac dealer in Dearborn, Connecticut told The Motley Fool that the company was proud of its reputation for its luxury line and that buyers could expect valuable incentives and up to $1,500 cash back on certain vehicles.
GM Looks to Drive Sales with Test-Drives
GM knows that luxury vehicles offer huge profits, and the company already showed positive sales movement in March 2013 with great sales levels on Cadillac vehicles. According to information website GM Authority, there were more Cadillac sales in the United States in March of 2013 than there were sales of Audis.
The ignition switch controversy isn’t a drop in the bucket for GM, but it won’t doom the company’s fortunes for 2014. With these $100 test-drives, the company stands to sell many more Cadillacs this year.