Automakers Join Credit-Card Race Started by GM

SINCE General Motors Corporation introduced its credit card last September, more than 12,000 customers have used their rebates toward the purchase of a new vehicle. That's up from 5,000 just two months ago.

"We're pleasantly surprised by the number of people who have used their rebate account to buy a car," says John Maciarz, a spokesman for GM. GM's MasterCard cardholders can earn a rebate of more than $3,500 over seven years. Currently GM has 4 million accounts.

Boosted by GM card's popularity in the United States, the carmaker says it is introducing a GM Visa card to Canada this summer in a partnership with Toronto Dominion Bank.

GM's successful card program puts more pressure on other US carmakers. In February, Ford launched its card in partnership with Citibank. And Chrysler Corporation is reportedly considering issuing its own card in the near future.

Jim Crawford, a Chrysler spokesman, says several major bank card companies have approached Chrysler to issue a card. But Chrysler has not yet made a decision, he says.

"We're not going to structure one [credit-card program] on the basis of competing with 200 other credit-card issuers," John Damoose, Chrysler's head of marketing, said in February.

If Chrysler launches its card, the carmaker needs to be careful not to repeat Ford's and Citibank's mistakes, according to Robert McKinley, president of Ram Research Corporation, a credit-card research firm in Frederick, Md. Mr. McKinley points out that currently Ford does not have corporate partners enabling cardholders to accumulate rebate points quickly.

M's program allows a cardholder to earn a 10 percent rebate on purchases made with GM's corporate partners, such as Marriott, Avis, MCI, and Mobil Oil, up to the $500 annual rebate cap. Beyond that, the cardholder earns only 5 percent rebate on extra purchases with these partners.

Citibank says it is still working on lining up partners. "The main stumbling block at this point is that Citibank computer systems are unable to process new partners for another couple of weeks," says Carolyn Brown, a Ford spokeswoman.

Ford's card program offers a $700 annual rebate cap on car purchases a year, compared to $500 for GM's card. But "raising the ceiling doesn't help unless Ford gives a consumer a way to rack up those rebates," McKinley says.

Without corporate partners, a Ford cardholder would have to charge at least $14,000 a year to earn the $700 cap. Cardholders charge an average of about $2,200 a year, McKinley says.

Ford's card carries a 15.4 percent interest rate - 1 percentage point lower than GM's. Ford charges a $20 annual fee, which is waived for the first year, and awards a $50 rebate toward a Ford car when the fee is paid. GM's card does not have an annual fee.

According to Mr. Maciarz, the average balance of a GM card rebate account so far is $200 to $300. He says one customer used just a $7 rebate toward the purchase of a new car.

McKinley says using a car-rebate card takes a lot of discipline on a consumer's part. In order to earn rebate points faster, a cardholder needs to funnel all purchases through the card including gasoline, groceries, medical bills, and movie tickets.

Some analysts, however, say the auto-rebate cards are not for everyone. "Unless you're a Ford or a GM car aficionado, you might not be interested in this card," says James Daly, editor of Credit Card News in Chicago. Foreign carmakers such as Toyota, Honda, and Volvo say they don't have plans to issue a similar credit card. "Most of our customers already have all of the credit cards they need," says Robert Austin, a Volvo spokesman.

Last month, Volvo became one of the corporate partners with the General Electric Rewards MasterCard program, which gives its cardholder a discount coupon ranging from $350 to $500 for the purchase of a particular Volvo model.