If you are one of those naive Americans who bought a GM car recently, you may have been taken for a ride, literally, by the company. GM is in deep financial trouble facing strong competition not only from Japanese automakers but also from Korean companies like Kia Hyundai. Since it could not sell its cars, it came up with a “brilliant” idea – make potential customers believe that they are getting the same discount that a GM employee gets. “You pay what we pay,” is nothing but a marketing ploy to make you buy a car now.
The reality is very different. Research conducted by David Healy, an analyst at Burnham Securities, shows that prices after the so-called employee discounts are actually little different than prices without them. How can that be? Simply because of the complex pricing system for automobiles.
According to James R. Healey and Sharon Silke Carty of USA TODAY, GM’s employee price is what a dealer actually pays for a vehicle, about 4% less than the dealer’s invoice price. The invoice includes a profit, called holdback. To compensate dealers for selling vehicles at no profit, GM gives them 5% of the window-sticker price, an average of about $1,500 a vehicle. Dealers can use the 5% to give additional discounts. And some models have rebates that push prices even lower than employee discounts.
So if you are a smart shopper and can negotiate lower prices, you have nothing to gain or even might lose since now the prices are non-negotiable. But if you have no clue how to negotiate or are shy of negotiating, then you might consider buying a GM car. But if Chrysler and other automakers introduce similar incentives, you must start with the understanding that you are not really getting a deal of a lifetime; you are simply getting the same price but without the hassle of negotiating a lower price.