Anyone who's followed the automotive industry the last couple months knows how Toyota (TM – $120.00) has ascended to the top spot in global sales, climbing past the Big 3 in the process. In response, GM (GM – $30.49) decided to take a more creative approach to marketing: if you can't beat 'em, show 'em.
Photo: smaira, Creative Commons, Flickr
In an effort to maximize sales for the Saturn Aura midsize sedan, GM asked dealers to have Honda Accords and Toyota Camries on hand for customers to test drive. Simply put, GM wants to show how Saturn compares favorably to the industry leaders. Chevrolet dealers will offer the same comparison-based test drives later this year with the Malibu.
The move may smack of desperation for some, although industry analysts say that GM has little to lose from the move. Sales trends indicate that those who buy Hondas and Toyotas never even consider a domestic sedan anyway. As a result, offering a test drive of the competition makes for a compelling headline and the resulting publicity could bring in more prospective customers.
In addition, Saturn represents an important part of GM's rebuilding plans. While GM sales dropped by 8.7% overall in 2006, Saturn sales grew by 6%. Furthermore, the innovative offshoot won't have any models older than 20 months by the time autumn rolls around. GM wants Saturn to play the role of the catalyst for a larger turnaround and models such as the Sky, Vue, and Aura add energy to an aging line of products.
So what does all this mean for Toyota, Honda (HMC – $34.44), and GM? On one hand, it does show that GM won't go down without a fight. On the other hand, Toyota and Honda already have a strong hold on the automotive industry and GM's strategy looks like an overly creative gimmick from an overworked marketing team.
Furthermore, analysts agree that improving brand image won't solve GM's problems. Conventional wisdom says GM needs to get smaller to get better. Unfortunately, the Detroit-based carmaker lost $1.1 billion last quarter and can't cut jobs or eliminate plants without paying a steep price under generous union agreements.
At this point, GM needs to cut some of its brands and invest in developing and marketing its best models. Offering test drives of competing vehicles in an effort to bolster Saturn sales indicates that GM has put the cart before the horse. Before you buy GM stock, consider the move as a sign that GM still doesn't have the focus it needs to dig itself out of a difficult predicament.
Disclosure: I do own a mutual fund that may contain one or more of the stocks mentioned in this post. However, any interest that I may own is subject to the discretion of my mutual fund manager.