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Extra12/29/2009 2:30 PM ET

GM deeply discounts Pontiacs and Saturns

Prices on some vehicles are slashed nearly in half to clear inventories of the soon-to-be-orphaned brands. But there are risks for buyers.

[Related content: cars, savings, GM, manufacturing, discount]
By The Wall Street Journal

General Motors is offering its dealers hefty incentives to move thousands of leftover vehicles from its discontinued Saturn and Pontiac brands. The unusual tactic could inflate the carmaker's December sales and cut the cost to car buyers by as much as 46% off the sticker prices.

In what is equivalent to a year-end fire sale, GM sent letters to dealers Dec. 23 saying it would pay them $7,000 for every new Saturn or Pontiac on their lot that is moved to rental-vehicle or service-vehicle fleets operated by the dealers. Dealers can then sell the vehicles at a more attractive price, though they must be described to customers as used because the dealers technically will be the vehicles' first owner.

The offer expires Jan. 4, the last day of the December car-sales month. GM will book the sales to dealers as fleet deliveries.

GM's move could speed the company's restructuring. Pontiac and Saturn, along with Hummer and Saab, were deleted from GM's lineup under its government-backed bankruptcy reorganization this summer. GM's remaining U.S. brands are Chevrolet, Buick, Cadillac and GMC.

The expense of the new program will add to GM's considerable cost of closing Saturn and Pontiac, a figure GM hasn't disclosed. GM spokesman Tom Henderson declined to comment on the financial impact of the new dealer incentives.

At the beginning of December GM dealers had 14,500 new Pontiacs and Saturns on their lots, which typically represents about two to three months of inventory depending on the model, according to Ward's Auto Reports.

Edmunds, another car-data service, estimates that GM will sell about 6,800 Pontiacs and 3,500 Saturns in December. That means dealers could have some 4,200 of the cars left.

Similar dealer-purchase programs in the past have provided a modest spark to industry sales. But GM's new offer dwarfs most prior efforts in that it involves so many vehicles -- a dozen nameplates, ranging from the Saturn Aura to the Pontiac Solstice -- and is structured as a mechanism to speed the liquidation of two brands.

"Our goal is to provide these dealers with another tool to help them reduce their inventories of noncore brands," Henderson said. "This in turn will help us move more quickly to focus on our Buick, Chevy, GMC and Cadillac brands."

Last December, GM sold about 250,000 vehicles. In recent months, however, it has been selling between 150,000 and 175,000 vehicles, meaning the Saturn and Pontiac clearance could provide a considerable boost to this month's results.

Asked about the short time window for GM dealers to respond to the offer, Henderson said, "We're trying to sell as many (vehicles) as we can at all times."

If a dealer passes along all the new incentive to a customer, Pontiac's cheapest vehicle, the G3 compact, could go for about $8,000, or 46% off the sticker price of about $15,000.

The perils of buying an 'orphaned' brand

But the offer presents buyers with some risks. Because the brands are being discontinued -- combined with the fact these vehicles technically are "used" -- the later resale value of the cars could be significantly lower than the resale value of other ongoing car brands sold as new.

And while GM says these customers will receive the balance of the warranty period on the vehicles, and GM will continue to provide parts and service, some buyers may not feel comfortable owning an "orphan" brand.

The automaker already has been offering Saturn and Pontiac buyers $6,500 discounts, or no-interest financing on 72-month loans. These two offers can't be combined with the $7,000-a-vehicle incentive GM is giving dealers.

Russ Shelton, a Pontiac, Buick and GMC dealer in Rochester Hills, Mich., said the $6,500 discounts being offered to consumers have been helpful in gaining momentum on the retail-sales front, but he said he will have to tap the new rental-fleet program to finish off his inventory.

"I can tell you we are going to do whatever it takes to sell the remaining Pontiacs," Shelton said in an email.

GM executives need look no further than their own efforts to discontinue Oldsmobile for evidence of how long it can take to shed an unwanted brand. The company announced Oldsmobile's closure in December 2000, but it took more than three years to exit the line.

Selling off Pontiac and Saturn inventory appeared to be motoring along in the days after GM's June 1 bankruptcy filing. At that point, dealers had 102,000 Saturns and Pontiacs in their inventory. Combined sales of the two brands averaged 32,500 per month in June through August.

But sales have fallen since, with deliveries averaging just 13,000 vehicles per month.

Because GM quit building Saturns and Pontiacs several months ago the selection of remaining vehicles is dwindling, meaning dealers could have a harder time moving existing stock as customers have to take what is available.

This article was reported by John D. Stoll for The Wall Street Journal.

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