Edmunds.com Sees Lessons in Chrysler's Bankruptcy as GM Prepares to File

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Edmunds.com Sees Lessons in Chrysler's Bankruptcy as GM Prepares to File

SANTA MONICA, Calif. — May 28, 2009 — A new Chrysler may be emerging just a GM slips into bankruptcy. Chrysler's experience has been extraordinary: it is going through a smoother, faster bankruptcy with the federal government playing the unprecedented role of both task-master and mediator.

GM is not Chrysler: GM is far larger and more complex. Still, the Chrysler experience should be cause for some optimism that GM's experience will be similarly efficient.What other lessons can GM take from Chrysler's experience?

1/ Consumers will do business with a bankrupt brand. Prevailing wisdom was that with a major purchase (like a vehicle) consumers would avoid the risk of buying from a company in bankruptcy.

Edmunds.com data shows that not to be the case. Consumer sales share dipped in April before bankruptcy was filed, but has rebounded since. Clearly, media coverage of a potential bankruptcy or liquidation does impact sales, but the stigma of being in bankruptcy seems to have been vastly overstated, with Chrysler consumer sales share back up to January levels for the month of May.

Changes in share of Industry Purchase Intent vs. baseline (the four weeks before the bankruptcy announcement — the all-time low for Chrysler):

2/ Consumers aren't as familiar with brands as one might think. The pattern where sales share drops pre-bankruptcy and climbs during is most pronounced for Chrysler Division vehicles, less so for Dodge division and almost not notable for Jeep division. Clearly consumers aren't keeping tabs on which vehicle brands are owned by which automaker. This could be good news for GM, whose divisions will most likely parallel the experience of Dodge and Jeep; not Chrysler division. (The exceptions being Saturn, Hummer and Pontiac where sales or shutdown have been covered extensively.)

Changes in share of industry purchase intent vs. April average:

3/ Consumers will have questions and want answers. Chrysler invested heavily in a brand marketing campaign immediately after filing. Edmunds.com CEO Jeremy Anwyl feels that may have been premature. "Like a salmon swimming upstream, Chrysler's lofty paid messages ran counter to a heavy flow of news reports covering bankruptcy. The messages appeared tone deaf, or just were ignored."

Consumers do have real questions about their dealer, their vehicle and the deals available in bankruptcy. Consumers flocked in record numbers to research these issues on the Internet; GM has the opportunity to proactively reach out and address these concerns head on.

4/ Consumers think that "bankruptcy" equals "deal." One reason that sales have been strong for Chrysler is that bankruptcy has brought "deal-seekers" into their dealer's showrooms. During the bankruptcy process, Chrysler is terminating 789 dealers with little advanced notice. This created a situation where some dealers have been selling Chrysler vehicles at significant discounts. The below chart sets out month-by-month analysis of the dealer profit margin trend, comparing closing dealerships to the average:

5/ A deal is what a consumer think is. Despite the terminated dealers selling vehicles at a unusually high discounted rate, overall profit margins for Chryslers dealers actually increased in May. How could this be? There is an intuitive logic around the idea that vehicles purchased from a bankrupt automaker must be a great deal. Consumers accepting this logic actually negotiate less aggressively and pricing trends up.

Instead of a brand campaign, GM would be well served to consider a bankruptcy sales event. This type of campaign would reinforce and build upon consumer beliefs — a highly efficient marketing strategy.

For more on automaker bankruptcy, see www.autoobserver.com.

About Edmunds (http://www.edmunds.com/about/)
Edmunds.com publishes four Web sites that empower, engage and educate automotive consumers and enthusiasts.
Edmunds.com, the premier online resource for automotive consumer information, launched in 1995 as the first automotive information Web site. Its most popular feature, the Edmunds.com True Market Value^® , is relied upon by millions of people seeking current transaction prices for new and used vehicles. Edmunds.com was named "Best Car Research Site" by Forbes ASAP, has been selected by consumers as the "Most Useful Web Site" according to every J.D. Power and Associates New Autoshopper.com Study(SM), was ranked first in the Survey of Car-Shopping Web Sites by The Wall Street Journal and was rated "#1" in Keynote's study of third-party automotive Web sites. Inside Line launched in January 2005 and is the most-read automotive enthusiast Web site. CarSpace launched in February 2006 and is an automotive social networking Web site and home to the oldest and most established automotive community. Edmunds is headquartered in Santa Monica, California, and maintains a satellite office in suburban Detroit.