Showing that it can pump new life into an old product, Household Credit Services Inc. has gained 650,000 new customers for the General Motors MasterCard in the year since introducing it with new terms.
There is no longer a $500 cap on the amount of rebate money that a cardholder can earn in a year, though the rebates must still be redeemed within seven years. There is still no annual fee a rare feature among rewards cards and cardholders still earn cash rebate points equal to 5% of all purchases.
The new GM card does impose restrictions on the size of the redemption a cardholder can apply to certain cars. The top redemption is $3,500, but with some cars, such as the popular Corvette, people can apply only $1,000 of rebate money.
In one new feature, cardholders can cash in smaller amounts of reward dollars for items other than vehicles. The GM card Web site says, for example, that $100 in GM card earnings will merit reduced rates on dining and accommodations at Ritz-Carlton Hotels, and $50 in GM points will earn discounts on four American Airlines tickets.
The travel and entertainment discounts are always changing said Mary Kubitskey, a spokeswoman for Detroit-based General Motors and for the GM card. We like to have people going back to the Web site.
The latest customer acquisition numbers are impressive, but a far cry from the cards heady launch in 1992, when it picked up a million customers in its first month and had two million after 45 days. The introduction of the GM MasterCard, one of the most successful cobranded cards ever, put Household on the cobranding map with the straightforward proposition that cardholders could apply rebate credits to the purchase of a vehicle.
The million accounts signed within a month set a record that still stands, and two of the executives who were there at the beginning, Ronald N. Zebeck and Joseph Saunders, are still at the top of the industry, heading up Metris Cos. and the credit card subsidiary of FleetBoston Financial Corp., respectively.
Many loyalty card programs have fallen by the wayside, including the most direct competitor to the GM card, the Ford Motor Co. card, which had been issued by Citibank. Ford was dissatisfied with the profit flow, and, in 1998, the Citigroup subsidiary replaced the program with Drivers Edge, a card that lets people accumulate rebate points toward vehicles of any manufacture.
But the GM card experienced its own doldrums in the late 1990s, when cardholder numbers dropped off from a high of about 9.4 million to under 6 million. The problem seemed to be the cards yearly cap of $500 in rebate accumulations. People would get to $500 and put their cards away, Ms. Kubitskey said. The new product allows them to buy more vehicles, and buy them more often.
Ms. Kubitskey would not name the models that are most popular in the redemption program, other than to say, It pretty much mirrors what the market is doing.
Most cardholders, though, redeem much less than $3,500, since they would have to charge at least $70,000 on the card to accrue that many reward dollars. More commonly the rewards redeemed on cars are between $1,200 and $1,400.
Randy Raup, managing director of cobranded programs at Household Credit Services in Prospect Heights, Ill., a subsidiary of Household International Inc., defended the practice of offering different rebate levels for different models. General Motors is in the business of selling cars, he said. From their perspective, why do they need to provide additional incentives on Corvettes which are already selling?
Mr. Raup added, Cardholders are still getting $1,000 off a Corvette, theyre just not getting $3,500 off. GM and Household boast that they have just awarded their three millionth redemption on the purchase or lease of a GM car or truck.
Mr. Raup said that rules governing the old GM card have not changed, and those cardholders can still redeem at the $3,500 level for all cars if they so choose or can switch to the new card.
At yearend 2000, the GM card portfolio had $7.3 billion in receivables, Mr. Raup said, and a chargeoff rate between 5% and 6%. Credit qualifications for the new GM card are the same as for the old one, he said.
Mr. Raup said that after the cards phenomenal launch, it was to be expected that sign-ups would ebb over time, as the cobrand field got more crowded and the product was no longer new. When you have a program that starts off as it did, it would be unrealistic to believe people wouldnt leave the program, given the competitive nature of the business, he said.
The updated GM card was introduced with a $435 million advertising campaign print, television, Internet banner ads and the results have slightly exceeded our expectations, Mr. Raup said. It was the first time in four years that the card had been heavily advertised. Ms. Kubitskey said the television spots have stopped for now, but they are looking at other possibilities later this year.
Michael Auriemma, president of the Auriemma Consulting Group of Westbury, N.Y., who did consulting work for both the GM card and the Ford card, said the lack of advertising hurt the GM card. You stop putting it in front of the consumer and the product is going to stagnate, he said.
Mr. Auriemma said the Citibank Ford program had been similar 5% earnings on purchases, but a $700 rewards cap over five years. The Citi Drivers Edge Card offers 2% to charter members those who had held the Ford card and 1% to newcomers. The maximum redemption is $2,500 and must be earned within five years. Thats gone very well, Mr. Auriemma said. Its a great program for consumers.