Note to Automakers: Deep Discounts Are Dirty Words

The dismal numbers say it all: even deep "employee" discounts and other programs aren't enticing strapped consumers to buy cars.

While all the automakers had a painful August, the sales declines for General Motors (GM) and Ford (F) were mind-blowing.   GM sales dropped 20%, while Ford posted a staggering 27.6% haircut.   Ford truck sales dropped 39%, while SUV sales collapsed 53% from last year.   

And it could get even more dire.  The Wall Street Journal cited Ford executive Jim Farley as saying the second half of the year could be just as bad or even worse.  It's hard to imagine an uglier second half than the first, and now it's going to be a real challenge to hit even 13 million total cars and trucks sold in America for the full year.   Even the once-mighty Toyota (TM) and Honda (HMC) are hurting, proving that fuel economy alone won't bring in buyers.

These figures come even as the automakers try everything but using dancing bears to sell cars.   Zero percent financing for five years, cash back and "employee discounts" (which I have never understood) are all proving not to be enough to move cars from the lot.

But while the automakers certainly are trying to win goodwill with these programs, there may be a dangerous downside: destruction of brand equity.  I call it the "Macy's/J.C. Penney syndrome."  Every week I seem to get a circular in the paper offering some "big sale" at the stores for whatever minor holiday or event is on the calendar.  "Enjoy Special Arbor Day Savings," or, "Celebrate Flag Day with a new Orange Peeler."

Okay, I made those up -- but you get my point.   I have become numb to the "big deals," but more importantly I have become conditioned to the idea that I can't go to Macy's (M) or J.C. Penney (JCP) unless there is a big sale.   Why would I ever pay full price?

Ford, GM and Chrysler risk conditioning buyers in the same way (if they haven't already).  There are so many programs and discounts that it's likely American car buyers now believe they deserve a deep discount on their car or truck.

This creates a destruction in the belief of the value of the product.   Consumers have shown they are more than willing to pay full price for a product they believe offers value or status benefits.   A $75,000 Mercedes CLK will get you where you need to go the same as a Ford Focus, but how often do you see sales on the CLK?   A Rolex tells the same time as a $100 Casio, but yet Rolex remains in business.   And Rolex doesn't have to discount because a Rolex buyer believes she is getting a superior product and brand awareness with the purchase.

Ford, GM and Chrysler need to work more on convincing buyers they are getting a great product, not just a good deal.   Consumers often equate "sale" with "cheap item" or "unwanted."   If you can't sell cars and trucks with $5,000 cash back and the now-extended employee pricing program, why have them?   It would be better to focus on value and style, and regrowing the brand equity the automakers have lost.   If cars aren't selling with deep discounts, change the marketing and at least try to make money on the cars you do sell.