Big Three Discounts Provide Unique Coverage Opportunities

Poised to improve their bottom lines on sales, the big three automakers have implemented employee discounts for all customers through Aug. 1. Such a move by domestic auto giants provides a myriad of coverage angles for the business press.

Following General Motors' announcement that it was extending its employee discount due to robust sales from the program in June, Ford and Chrysler quickly followed suit to level the selling field. There are a lot of behind-the-scene scenarios that business journalists can bring to the forefront for readers.

It is important to paint the picture for readers as to why these companies are making such a seemingly drastic move.

For one, the price of gasoline could alter buying habits of the American public. By the Fourth of July holiday weekend, gas prices across the nation stood near record levels at an average of $2.21 a gallon. Domestic cars that get low mileage stand to suffer. Some foreign counterparts and hybrid cars could benefit. But the new incentives could temporarily reverse that trend.

Report on where consumers can get the best deals in line with these discounts. Although some of these discounts can knock thousands of dollars off the Manufactured Suggested Retail Price (MSRP), higher interest rate charges could be imposed.

"Tell consumers where the bargains are, and their effect on the market," says Eric Mayne, automotive reporter with The Detroit News. "The latter can be an indication of how long the discount climate will last."

Some slower-selling vehicles that might already be subject to discounts might not offer many more dollar savings under the employee pricing plan. This is information that readers will want to know.

"Mike Chung, pricing and market analyst at Edmunds.com, which markets vehicle pricing information, said the discounts offer hefty savings on popular vehicles that have been selling at or near the manufacturer's suggested retail price," writes Bruce Mohl in The Boston Globe. "But he said the savings are much less or nonexistent on slower-selling vehicles that often sell well below MSRP anyway."

Offering widespread discounts to the general public will undoubtedly undercut profit forecasts made earlier in the year. The reaction of shareholders and corporate executives alike to this move can provide an interesting contrast.

"The consensus is that Big Three's profits will suffer -- long term, if not short term, because they will pull sales ahead," Mayne says. "But there is a minority opinion that says the resulting effect on inventories will help boost sales of'06 models, so profits could be enhanced.

"The Big Three need to recoup what they've lost of the market, or at least stabilize their current share."

To get a firm grasp on how profits will ultimately play out, touch base with industry and Wall Street analysts. Such sources can provide seasoned perspective to your coverage.

If they aren't busy selling cars at this discount, try to get dealers on the phone as well. They can tell you how fast vehicles are moving off their lots and the pace at which customer traffic has shifted. If sales are turning the corner, a follow-up sidebar on empty dealer lots may soon hit your news section's budget.

"There could be some effect on production as dealers demand more vehicles to replace depleted inventories," Mayne suggests.

And as with all seemingly good things, employee pricing at the big three automakers will come to an end. Once 2006 models hit dealer lots, prices will stabilize and adjust for market conditions in the coming year.

If there was a wave of purchasers who took advantage of employee discounts to already buy news cars, then initial sales of 2006 models could suffer. Keep Aug. 1 on your calendar to follow up on any trends that may surface once price tags rise again.

To do this, compare initial sales of 2005 models at various lots last August to upcoming numbers for 2006 when that time arrives. Then ask corporate leaders, consumers and analysts to comment on what impact the employee discount had on each of them.

Finally, don't forget about the effect on auto suppliers. Although the pricing structure affects dealerships, supply orders will likely jump due to a perception in increased demand.

"Auto-parts suppliers are poised to cash in as Ford and DaimlerChrysler unveil sales blitzes like the one that sparked a breakout-sales month for General Motors," according to a report in MarketWatch.

An analyst told MarketWatch that "while the Big Three's move to employee-discounting programs doesn't bode well for automaker profitability, 'it does significantly improve the outlook for U.S. light-vehicle sales and North America production, which is what drives supplier revenue and earnings.'"

Copyright © 2008 Donald W. Reynolds National Center for Business Journalism