GM hoping its SUV gamble comes up big

**Ming** · 05-22-2005, 11:42 PM

GM hoping its SUV gamble comes up big
Slumping company banks on turnaround
By Rick Popely and Jim Mateja
Tribune staff reporters
Published May 22, 2005
www.chicagotribune.com

When General Motors introduced its current line of large sport-utility vehicles in 1999, gasoline was about $1.25 per gallon and America had an insatiable appetite for the behemoths, the auto industry's most profitable models.

But with gas stuck above $2 a gallon and smaller, more efficient SUVs flooding the market, sales of GM's big boys are down 26 percent this year, putting a dent in the automaker's profits and raising questions about its future.

And even while attributing much of its $1.1 billion first-quarter loss to the slump, GM insists a turnaround is as close as early 2006, when new versions of models such as the Chevrolet Tahoe and Suburban and GMC Yukon arrive.

"GM is taking a significant risk because the big SUV segment is in a state of decline," said Burnham Securities analyst David Healy. Industry sales of full-size SUVs are down 22 percent through April. "New models will help, but they aren't the full answer. GM has to accept the idea of lower volume and lower profits in that segment and that it still has to shrink overhead."

The idea of lower volume and lower profits from its former cash cows comes at a time when they are still at the heart of GM's product mix.

"The mix is having an impact, and we knew it would this year because this is the last year of the current full-size SUV life cycle," Paul Ballew, GM's market analyst said.

Ballew says other GM models are picking up some of the slack as consumers choose more expensive crew- and extended-cab pickups instead of two-door models. And the mix will change with its plans to consolidate Buick, Pontiac and GMC into a single "channel" offering all three brands, but fewer models, at one store that would put greater emphasis on car lines.

Passenger cars account for a greater percentage of GM's sales this year, but the carmaker doesn't have a standout like the 300 sedan at Chrysler, a Bentley lookalike that has sold briskly for more than a year with few incentives.

"Except for the [Chevrolet] Corvette, I don't see that GM has any `gotta have' cars," said Healy. "GM's problem is that it has far better quality in its vehicles than it did a year ago, but its products are boring."

Ballew counters that the Chevrolet Cobalt, Pontiac G6 and Buick LaCrosse, all of which were introduced last year, are gaining momentum. Since December, LaCrosse sales have climbed 29 percent, to 8,612 last month; the G6 is up 76 percent, to 11,790; and the Cobalt more than quadrupled, to 22,726.

Cars typically generate lower profits than trucks and in some cases lose money. Small cars in particular make little, but automakers offer them to attract entry-level buyers and meet government fuel-economy requirements.

Sales of full-size pickup trucks, which analysts say are nearly as profitable as large SUVs, are up 1.5 percent this year. Pickups are less sensitive to gas prices because many buyers need a full-size truck for work, but they carry a price. Incentives on GM's half-ton pickups (Silverado 1500 and Sierra 1500), for example, averaged about $3,600 last month.

GM's incentives on its large SUVs have more than doubled the last three years, but Jesse Toprak, senior analyst at Edmunds.com, a consumer automotive Web site, says the offers have reached the point of diminishing returns. Edmunds calculates that incentives averaged $4,197 on the Suburban in April and $4,646 on the Tahoe.

"They're spending a lot of money. It appears they're not getting much return," he said. Edmunds says GM incentives averaged $3,477 per vehicle in April, second only to Chrysler ($3,535). The industry average was $2,434.

"In the large SUV segment, high gas prices may steer you to another segment that provides everything you need but gets better gas mileage," Toprak said.

Besides, he added: "Fashion plays a big role in car purchases, and it's not the coolest car any more."

GM is banking that the Cadillac DTS and Buick Lucerne large sedans arriving later this year will have some of that "cool," but it sees the big SUVs as key to its bottom line.

"Gains in car sales aren't going to offset losses in big SUVs," said Joe Phillippi, principal of consulting firm Auto Trends. "Only a handful of its car portfolio comes close to matching the gross profits on full-size SUVs."

Toprak says it is critical that all of GM's new models, especially the SUVs, get off to a strong start to avoid what he calls the "domestic introduction syndrome."

"New models arrive with lots of hype, and they sell well to early adopters," he said. "But then the hype dies down, and the manufacturer may produce more than they need, and they just have too many cars to sell."

Slapping incentives on a vehicle early in its life is the kiss of death, Toprak adds.

"Once you put a high incentive on a vehicle, you can't back away until you perform a major redesign. The customer will come to expect that, and the incentives just snowball," he said.

And what if the new SUVs don't provide the expected lift?

"We have alternative plans and contingency plans in place if that should happen, but I'm not going to say what they are," Ballew said.

Article Source: http://www.chicagotribune.com/busine...i-business-hed

Infiniti Z350 · 05-22-2005, 11:48 PM

Quote:

Originally Posted by Ming

"Except for the [Chevrolet] Corvette, I don't see that GM has any `gotta have' cars," said Healy. "GM's problem is that it has far better quality in its vehicles than it did a year ago, but its products are boring."

Um...GTO, Cadillac V-Series, Solstice, Sky, XLR, I think are "gotta have".

But hey, to each his own.

dav305z · 05-22-2005, 11:57 PM

I really think the media is not really understanding the market here. They think people aren't going to buy these SUV's because gas is more expensive? Have they ever seen the price tag on these things? What world do they live in where someone can afford to spend $40,000-$50,000 on a vehicle but then cannot afford the extra $0.50 a gallon gas prices?
Additionally, I cannot beleive the logic being demonstrated in these articles. Specifically, they all mention how GM trucks are old and how this hurts sales, and thus attribute the decline in truck sales to... gas prices! Sorry, not buying it.
Perhaps - and I could be wrong here - GM trucks make up enough of the truck market so that when they go down, the entire segment goes down with them? Oh wait, but that's not nearly as interesting to put in an article

.

327 · 05-23-2005, 12:17 AM

, I cannot beleive the logic being demonstrated in these articles. Specifically, they all mention how GM trucks are old and how this hurts sales, and thus attribute the decline in truck sales to... gas prices! Sorry, not buying it.
]

and wasnt chevy rated 2nd just behind ford in the last monthly sales list and GMC was 5th or so?

AdmiralViscen · 05-23-2005, 01:39 AM

I don't tihnk it's so bad that GM's incentives are only a thousand dollars above average, when you consider that more than half of their sales come from dated trucks that require incentives to move in the face of brand-new competition at similar price points. I also don't see why everyone bashes the Cobalts 750 dollars in incentives, when the average is 2500.

**mgescuro** · 05-23-2005, 02:05 AM

Quote:

Originally Posted by dav305z

I really think the media is not really understanding the market here. They think people aren't going to buy these SUV's because gas is more expensive? Have they ever seen the price tag on these things? What world do they live in where someone can afford to spend $40,000-$50,000 on a vehicle but then cannot afford the extra $0.50 a gallon gas prices?
Additionally, I cannot beleive the logic being demonstrated in these articles. Specifically, they all mention how GM trucks are old and how this hurts sales, and thus attribute the decline in truck sales to... gas prices! Sorry, not buying it.
Perhaps - and I could be wrong here - GM trucks make up enough of the truck market so that when they go down, the entire segment goes down with them? Oh wait, but that's not nearly as interesting to put in an article

.

Finally.... someone on this site that sees the forest from the trees!!!

AdmiralViscen · 05-23-2005, 02:13 AM

Hey, I've been saying that for months.

stevews602 · 05-23-2005, 07:35 AM

I would like to think otherwise, but if all SUV sales are down 22% then that indicates something is causing it.
Everyone I know with SUV's complain about gas prices and even those who use trucks for work tell me that they are looking to downsize.
I think GM is in big toruble with this, but I hope I'm wrong...

joey · 05-23-2005, 08:28 AM

The SRX is doing well, but the Theta group should be doing much better. Stick the Honda 3.5L in the Torrent and watch them fly out the showroom.

GM totaly missed the ball on cross-overs. Not a single station wagon other then the Saab 9-5.

They have a lot great pieces in the parts bin, but they can't option out a new offering with the right power options.

LazyGeneral · 05-23-2005, 09:54 AM

I must confess, I don't get SUV's at all. If they make $ that's great, but they aren't really for me (well, except for the H3, that thing is cool).

Anyway, the thing that rubs me with these articles are foolish comments like:

"GM's problem is that it has far better quality in its vehicles than it did a year ago, but its products are boring."

I mean, boring isn't a problem for sales (see the king of profit: Toyota). What's a problem is that the quality image is just starting to grow (whereas Toyota has been growing for years) and some of the mainstream cars are boring (think Colbalt without the SS - which just arrived in my area). Mazda 3, for example, has been selling like crazy here in Toronto as it's seen as exciting, and the same can be said for the Corrola, which is seen as high quality. Colbalt, and Chevy, need time for the quality image to work its way into the public or, Chevy can release cars like the Solstice that catch attention regardless of the quality image.

At least that's how I see it.

GMlvrsince72 · 05-23-2005, 10:21 AM

I am not sure about the entire V-6 line-up that GM has available right now. I do know that the 3400 is not very smooth or stong. There is an obvious phase out of the 3800 (mistake in my opinion) and the 3900 that I experienced did not impress me a lot either. As for the Honda 3.5..... I (my wife) own's one in the Vue and it is smooth and quiet and pretty strong but does not feel like it's rated 250 hp to me and I am not impressed with it's transmission programming or fuel economy. So don't think the Honda engine is some great package. As for the Torrent......I think it looks great and should be a winner if GM gets a clue how to market it. The commercials will no doubt show it in a bland color from a few angles and zooming by to the beat of some ancient rock song and yet tell the viewer nothing about it. That is the way GM ads are. And probably some lame and meaningless tag line like "Break through".

Hotspur · 05-23-2005, 11:13 AM

Quote:

Originally Posted by mgescuro

Finally.... someone on this site that sees the forest from the trees!!!

Ford and GM SUV sales are down dramatically. So where are those customers going? Toyota's large SUV sales are down. The Nissan is not selling. If gas prices don't matter what company has seen a spike in SUV sales?

And many buyers can't afford the gas. Why, because they are leasing a $40K truck and they can't truly afford that either...

88montess · 05-23-2005, 11:19 AM

Quote:

Originally Posted by AdmiralViscen

I don't tihnk it's so bad that GM's incentives are only a thousand dollars above average, when you consider that more than half of their sales come from dated trucks that require incentives to move in the face of brand-new competition at similar price points. I also don't see why everyone bashes the Cobalts 750 dollars in incentives, when the average is 2500.

Ecspecially when the $750 in incentives are more then the entire mark-up on the car.

I too beleive the 05 GTO 6 speed is actually doing quite well, and solstice, cobalt SS is bringing over sticker in this area, I think the hard-top convert G-6 a nd even the HHR are All good gotta have products. We are getting faxes that Stores will pay us $6000 over MSRP for any Z06 allocation. thats not what they are selling it for that is what the dealers are paying wholsale for, tell me the Z06 is not going to be a gotta have. and $70K or so a pice won't hurt. I also have seen the new Impala on some training product. Hold your opinion till you see it in person. the long hood etc. just don't show in the pic's like in person. It may not be a Hemi, but the V-8 in our midsize cars will give us a big advantage over Ford, and the 5.3L has a strong rep from trucks, when you tell these hundreds of thousands 5.3L truck owners they can get an Impala, Monte, or Grnd Prix with that engine it will Help sales.

gacSTclass · 05-23-2005, 11:22 AM

Most of these people would be served fine by buying a minivan or a van anyways, and a lot of them are waking up and realizing that the good looking crossovers and wagons do what they need too. Bigger is better is turning into bigger just looks more ridiculous for some. The act of buying a fuel inefficient vehicle reflects on their common sense when gas is 2.00 or more a gallon, and there are a lot of other vehicles that will haul and carry anything they need for either less gas (minivan) or less cost for the vehicle (full sized passenger van).

Globalist · 05-23-2005, 11:37 AM

I agree with the article's title--It is a gamble, but not a real one. When you have a vehicle mix (more trucks than cars) that depends so heavily on so many geopolitical unpredictable parameters, then there are obviously risks. And like in investment high risk means high return.

But, the truth is it's not a real gamble. It's the default choice before the new highly expected cars are up and running. That's the "Vegas" part of the situation.

05-22-2005, 11:42 PM	#1 (permalink)
Ming GMI Staff Member Join Date: Jan 2003 Location: SE Texas Posts: 13,430	GM hoping its SUV gamble comes up big GM hoping its SUV gamble comes up big Slumping company banks on turnaround By Rick Popely and Jim Mateja Tribune staff reporters Published May 22, 2005 www.chicagotribune.com When General Motors introduced its current line of large sport-utility vehicles in 1999, gasoline was about $1.25 per gallon and America had an insatiable appetite for the behemoths, the auto industry's most profitable models. But with gas stuck above $2 a gallon and smaller, more efficient SUVs flooding the market, sales of GM's big boys are down 26 percent this year, putting a dent in the automaker's profits and raising questions about its future. And even while attributing much of its $1.1 billion first-quarter loss to the slump, GM insists a turnaround is as close as early 2006, when new versions of models such as the Chevrolet Tahoe and Suburban and GMC Yukon arrive. "GM is taking a significant risk because the big SUV segment is in a state of decline," said Burnham Securities analyst David Healy. Industry sales of full-size SUVs are down 22 percent through April. "New models will help, but they aren't the full answer. GM has to accept the idea of lower volume and lower profits in that segment and that it still has to shrink overhead." The idea of lower volume and lower profits from its former cash cows comes at a time when they are still at the heart of GM's product mix. "The mix is having an impact, and we knew it would this year because this is the last year of the current full-size SUV life cycle," Paul Ballew, GM's market analyst said. Ballew says other GM models are picking up some of the slack as consumers choose more expensive crew- and extended-cab pickups instead of two-door models. And the mix will change with its plans to consolidate Buick, Pontiac and GMC into a single "channel" offering all three brands, but fewer models, at one store that would put greater emphasis on car lines. Passenger cars account for a greater percentage of GM's sales this year, but the carmaker doesn't have a standout like the 300 sedan at Chrysler, a Bentley lookalike that has sold briskly for more than a year with few incentives. "Except for the [Chevrolet] Corvette, I don't see that GM has any `gotta have' cars," said Healy. "GM's problem is that it has far better quality in its vehicles than it did a year ago, but its products are boring." Ballew counters that the Chevrolet Cobalt, Pontiac G6 and Buick LaCrosse, all of which were introduced last year, are gaining momentum. Since December, LaCrosse sales have climbed 29 percent, to 8,612 last month; the G6 is up 76 percent, to 11,790; and the Cobalt more than quadrupled, to 22,726. Cars typically generate lower profits than trucks and in some cases lose money. Small cars in particular make little, but automakers offer them to attract entry-level buyers and meet government fuel-economy requirements. Sales of full-size pickup trucks, which analysts say are nearly as profitable as large SUVs, are up 1.5 percent this year. Pickups are less sensitive to gas prices because many buyers need a full-size truck for work, but they carry a price. Incentives on GM's half-ton pickups (Silverado 1500 and Sierra 1500), for example, averaged about $3,600 last month. GM's incentives on its large SUVs have more than doubled the last three years, but Jesse Toprak, senior analyst at Edmunds.com, a consumer automotive Web site, says the offers have reached the point of diminishing returns. Edmunds calculates that incentives averaged $4,197 on the Suburban in April and $4,646 on the Tahoe. "They're spending a lot of money. It appears they're not getting much return," he said. Edmunds says GM incentives averaged $3,477 per vehicle in April, second only to Chrysler ($3,535). The industry average was $2,434. "In the large SUV segment, high gas prices may steer you to another segment that provides everything you need but gets better gas mileage," Toprak said. Besides, he added: "Fashion plays a big role in car purchases, and it's not the coolest car any more." GM is banking that the Cadillac DTS and Buick Lucerne large sedans arriving later this year will have some of that "cool," but it sees the big SUVs as key to its bottom line. "Gains in car sales aren't going to offset losses in big SUVs," said Joe Phillippi, principal of consulting firm Auto Trends. "Only a handful of its car portfolio comes close to matching the gross profits on full-size SUVs." Toprak says it is critical that all of GM's new models, especially the SUVs, get off to a strong start to avoid what he calls the "domestic introduction syndrome." "New models arrive with lots of hype, and they sell well to early adopters," he said. "But then the hype dies down, and the manufacturer may produce more than they need, and they just have too many cars to sell." Slapping incentives on a vehicle early in its life is the kiss of death, Toprak adds. "Once you put a high incentive on a vehicle, you can't back away until you perform a major redesign. The customer will come to expect that, and the incentives just snowball," he said. And what if the new SUVs don't provide the expected lift? "We have alternative plans and contingency plans in place if that should happen, but I'm not going to say what they are," Ballew said. Article Source: http://www.chicagotribune.com/busine...i-business-hed __________________ The Latest: Step by Step - How to Play Commodore 64 Games on a PC

05-22-2005, 11:57 PM	#3 (permalink)
dav305z 6.2 Liter Vortec V8 Join Date: Sep 2004 Posts: 2,523	Re: GM hoping its SUV gamble comes up big I really think the media is not really understanding the market here. They think people aren't going to buy these SUV's because gas is more expensive? Have they ever seen the price tag on these things? What world do they live in where someone can afford to spend $40,000-$50,000 on a vehicle but then cannot afford the extra $0.50 a gallon gas prices? Additionally, I cannot beleive the logic being demonstrated in these articles. Specifically, they all mention how GM trucks are old and how this hurts sales, and thus attribute the decline in truck sales to... gas prices! Sorry, not buying it. Perhaps - and I could be wrong here - GM trucks make up enough of the truck market so that when they go down, the entire segment goes down with them? Oh wait, but that's not nearly as interesting to put in an article . __________________ "The movement you need is on your shoulders" - Paul McCartney

05-23-2005, 12:17 AM	#4 (permalink)
327 7.0 Liter LS7 V8 Join Date: Jul 2004 Location: NE Posts: 6,667	Re: GM hoping its SUV gamble comes up big , I cannot beleive the logic being demonstrated in these articles. Specifically, they all mention how GM trucks are old and how this hurts sales, and thus attribute the decline in truck sales to... gas prices! Sorry, not buying it. ] and wasnt chevy rated 2nd just behind ford in the last monthly sales list and GMC was 5th or so? __________________

05-23-2005, 01:39 AM	#5 (permalink)
AdmiralViscen 7.0 Liter LS7 V8 Join Date: Aug 2004 Location: New York Posts: 7,501	Re: GM hoping its SUV gamble comes up big I don't tihnk it's so bad that GM's incentives are only a thousand dollars above average, when you consider that more than half of their sales come from dated trucks that require incentives to move in the face of brand-new competition at similar price points. I also don't see why everyone bashes the Cobalts 750 dollars in incentives, when the average is 2500. __________________ God Bless the Blue Bullet.

05-23-2005, 02:13 AM	#7 (permalink)
AdmiralViscen 7.0 Liter LS7 V8 Join Date: Aug 2004 Location: New York Posts: 7,501	Re: GM hoping its SUV gamble comes up big Hey, I've been saying that for months. __________________ God Bless the Blue Bullet.

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05-23-2005, 07:35 AM	#8 (permalink)
stevews602 2.0 Liter Supercharged ECOTEC Join Date: Nov 2003 Location: USA Drives: WS6 Posts: 197	Re: GM hoping its SUV gamble comes up big I would like to think otherwise, but if all SUV sales are down 22% then that indicates something is causing it. Everyone I know with SUV's complain about gas prices and even those who use trucks for work tell me that they are looking to downsize. I think GM is in big toruble with this, but I hope I'm wrong...

05-23-2005, 08:28 AM	#9 (permalink)
joey 3.8 Liter V6 Join Date: May 2003 Posts: 414	Re: GM hoping its SUV gamble comes up big The SRX is doing well, but the Theta group should be doing much better. Stick the Honda 3.5L in the Torrent and watch them fly out the showroom. GM totaly missed the ball on cross-overs. Not a single station wagon other then the Saab 9-5. They have a lot great pieces in the parts bin, but they can't option out a new offering with the right power options.

05-23-2005, 09:54 AM	#10 (permalink)
LazyGeneral 2.2 Liter ECOTEC Join Date: Apr 2005 Location: Toronto Drives: Saab 9-3 T4 Posts: 70	Re: GM hoping its SUV gamble comes up big I must confess, I don't get SUV's at all. If they make $ that's great, but they aren't really for me (well, except for the H3, that thing is cool). Anyway, the thing that rubs me with these articles are foolish comments like: "GM's problem is that it has far better quality in its vehicles than it did a year ago, but its products are boring." I mean, boring isn't a problem for sales (see the king of profit: Toyota). What's a problem is that the quality image is just starting to grow (whereas Toyota has been growing for years) and some of the mainstream cars are boring (think Colbalt without the SS - which just arrived in my area). Mazda 3, for example, has been selling like crazy here in Toronto as it's seen as exciting, and the same can be said for the Corrola, which is seen as high quality. Colbalt, and Chevy, need time for the quality image to work its way into the public or, Chevy can release cars like the Solstice that catch attention regardless of the quality image. At least that's how I see it.

05-23-2005, 10:21 AM	#11 (permalink)
GMlvrsince72 3.5 Liter V6 Join Date: Dec 2004 Location: Michigan Drives: 1997 Sliverado ....mint condiditon with some mods Posts: 201	Re: GM hoping its SUV gamble comes up big I am not sure about the entire V-6 line-up that GM has available right now. I do know that the 3400 is not very smooth or stong. There is an obvious phase out of the 3800 (mistake in my opinion) and the 3900 that I experienced did not impress me a lot either. As for the Honda 3.5..... I (my wife) own's one in the Vue and it is smooth and quiet and pretty strong but does not feel like it's rated 250 hp to me and I am not impressed with it's transmission programming or fuel economy. So don't think the Honda engine is some great package. As for the Torrent......I think it looks great and should be a winner if GM gets a clue how to market it. The commercials will no doubt show it in a bland color from a few angles and zooming by to the beat of some ancient rock song and yet tell the viewer nothing about it. That is the way GM ads are. And probably some lame and meaningless tag line like "Break through". Last edited by GMlvrsince72 : 05-23-2005 at 10:25 AM.

05-23-2005, 11:22 AM	#14 (permalink)
gacSTclass 3.8 Liter Supercharged V6 Join Date: Apr 2005 Posts: 612	Re: GM hoping its SUV gamble comes up big Most of these people would be served fine by buying a minivan or a van anyways, and a lot of them are waking up and realizing that the good looking crossovers and wagons do what they need too. Bigger is better is turning into bigger just looks more ridiculous for some. The act of buying a fuel inefficient vehicle reflects on their common sense when gas is 2.00 or more a gallon, and there are a lot of other vehicles that will haul and carry anything they need for either less gas (minivan) or less cost for the vehicle (full sized passenger van). __________________ GM Tuner Source

05-23-2005, 11:37 AM	#15 (permalink)
Globalist 5.3 Liter Vortec V8 Join Date: Dec 2004 Drives: V6 3.2 L Posts: 1,252	Re: GM hoping its SUV gamble comes up big I agree with the article's title--It is a gamble, but not a real one. When you have a vehicle mix (more trucks than cars) that depends so heavily on so many geopolitical unpredictable parameters, then there are obviously risks. And like in investment high risk means high return. But, the truth is it's not a real gamble. It's the default choice before the new highly expected cars are up and running. That's the "Vegas" part of the situation.

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