Automaker Plastic Turbocharges Sales

Bob Holmes says he already had a pretty good deal going on the Chevrolet Lumina he wanted to lease this month.

Since his brother worked for General Motors, he would get a family discount. And GM was offering a $1,000 rebate on top of that.

But the physical-education teacher sweetened the deal with his own rebate - $2,010 from his GM Card.

Holmes’ experience is becoming the rule for hundreds of thousands of people considering GM and Ford cars. The two auto giants owe potential customers more than $5 billion in rebates because of credit-card partnerships they created three years ago.

Every purchase - a compact disc at a record store, a gasoline fill-up or dinner out - charged to the GM Card and Ford Citibank Visa earns a 5-percent rebate credit that goes into an account similar to those airlines have for frequent-flyer miles.

But the GM and Ford credit cards are a far better deal than collecting frequent-flyer miles, said Robert McKinley, president of RAM Research, a Maryland firm that specializes in such marketing.

“It’s generally accepted that an air mile is worth two cents,” he said. “On the auto cards, you’re getting 5 percent” - or five cents on the dollar.

Holmes found the nickels added up quickly when he and his wife, Karen, decided to use only the GM Card and pay off the balance each month.

“We use it for things that we didn’t used to,” said Holmes, who teaches at Franklin High School in Livonia, Mich. “It was not painful doing what we do. It didn’t cost us anything.”

Here’s how it works:

Of every purchase you make with an auto-company credit card, you get a credit of 5 percent toward the purchase or lease of a new car.

The maximum base rebate you can accumulate is $700 a year for five years on the Ford Visa card, or $500 a year for seven years on the GM Card.

The rebate can be much higher with a gold card or if it’s used to shop at specially designated gas stations, rental car companies and service departments at GM dealerships where purchases earn an extra 5 percent and there’s no limit on how much credit you can get.

The credits you build up by using the auto cards are, for the purpose of buying a new car, as good as cash. That is, you make your best deal, take advantage of any other discounts or rebates, and then the final price is reduced by the amount of auto-card credits you’ve built up. The automaker keeps track of all your credits.

GM and Ford get their big payback when someone buys or leases a new car. They make some money from the merchants who honor the card by collecting a percentage of each transaction. According to their latest filings with the Securities and Exchange Commission, Ford said it owed a potential $3.1 billion on credit card programs worldwide. GM had racked up $2.5 billion.

Big numbers, sure. But not so imposing, considering that GM had $168 billion in revenue last year and Ford had $137 billion.

Every rebate paid means another car sold, so the marketing expense is well worth it, said Steve Lucas, program manager of credit-card operations for Ford.

Since it debuted in September 1992, GM Card rebates have been used on more than 700,000 new car or truck purchases, said Hank Weed, managing director of GM Card operations. The average rebate has been $690.

Ford won’t say how many rebates it has paid or the average amount generated from the card Citibank began issuing in February 1993.

At Lou LaRiche Chevrolet in Plymouth, Mich., salesman Ed Allen said one out of four customers uses a GM Card rebate against a new-car purchase.

Their credit-card rebate programs have a lot of competition. Everyone from Toys-R-Us to General Electric, Shell Oil and AT&T offers some form of rebate for using their card. The airlines came up with such credit cards in the mid-1980s, offering one frequent flyer mile for each dollar charged.

GM Card and Ford Visa rank No. 2 and No. 3 among such credit cards with a combined 20.7 million cards issued. AT&T’s Universal Bank Card is tops with 24 million cards issued.

Holmes, whose GM Card rebate lowered his lease payment on the Lumina by $100 a month, said he was amazed by the savings.

“They’re trying to build brand loyalty,” he said, “and if you’ve got that kind of money available, it’s almost impossible to not go the GM route.”

The following fields overflowed: CREDIT = Knight-Ridder, Knight-Ridder Newspapers