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General Motors Leads the Charge

Essay by review  •  November 25, 2010  •  Essay  •  425 Words (2 Pages)  •  971 Views

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GENERAL MOTORS LEADS THE CHARGE:

The Launch of the GM Card

In 1992 at a convention, Visa USA president and CEO Robert Heller belittled the arrival of non-band credit-card issuers. He joked that it wouldn't be long before pizza parlors joined AT&T and General Motors in offering cards. Within a year he was punted and people were talking about McDonald's having a credit card.

The US Car Industry in the Early 90's

Flat demand and foreign competition made the early 90's tough for the big three. In 1992 GM chalked up the largest annual loss in US corporate history, around $4.5 billion.

Part of the solution to GM's problem was to make better cars and make them more efficiently.

That still left the issue of how cars were sold. End-of-the year rebates, cash-back, and dealer discounts were hard to control. Car buyers began to expect these incentives, so they waited and by waiting forced manufacturers to offer them earlier in the year.

The GM Card

In September 1992, GM teamed up with Household Bank, a major issuer of co-branded credit cards, to launch the GM Card under the MasterCard umbrella. The card allowed holders to apply 5% of their charges to the purchase or lease of a new GM car or truck. The credit was applied after the customer had negotiated his or her best deal on the vehicle. Cardholder were allowed to accumulate up to $500 a year in rebates, with a ceiling of $3500 over 7 years.

GM spent $120 million on a marketing blitz.

The GM Card rollout was the most successful ever in the credit-card business. After only twenty-eight days, there were one million accounts. In less than two months, there were over two million GM Card accounts, and card balances topped $500 million.

The eight million-plus new accounts propelled Household Bank from 10th to 5th place among credit-card issuers. Annual charge volume on the GM Card was $5200, or two and a half times the national average.

The Ford-Citibank Card

In February 1993, Ford joined forces with Citibank. In April 1994 analysts estimate the number of cardholders at 1.3-5 million.

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