Tahoe puts rush on GM's SUVs

[FISH]

http://www.freep.com/apps/pbcs.dll/a.../1014/BUSINESS

March 15, 2006
BY MICHAEL ELLIS


Some declared the SUV market dead when gas prices topped $3 a gallon last year, and said General Motors Corp. was foolish to invest billions in a lineup of new large SUVs.

But sales of the new Chevrolet Tahoe are so strong that GM is now trying to speed up the launch of several other SUVs and ship them to dealerships two to four weeks ahead of schedule, Mary Sipes, GM's vehicle line director for large trucks, said Tuesday.

The Tahoe -- with better fuel economy and added features -- has been on sale only since early January, but sales are up 49.8% from January and February last year.

And the surprising surge comes without a cent of incentives on the new model, which is selling for more than the vehicle it replaced. GM is offering incentives of as much as $7,500 on the older Tahoe.

The strong early sales of the Tahoe and GM's confidence in its upcoming SUVs show that there is life left in the SUV market, even with sales of most other SUVs down in 2006. If Tahoe's success is any indication, the key seems to be bringing in new models. Ford Motor Co. and the Chrysler Group also plan new SUVs this year.

GM's highly profitable SUVs also give hope to the struggling automaker.

Dealers can't get enough of the new Tahoe, Sipes said.

"I've had people find that I have the only white one in the area, and they drive quite a few miles to get it," said Steve Cook, owner of Cook Chevrolet-Pontiac-Buick in Vassar, a town 20 miles east of Saginaw. "Everybody really likes the look."

Even Donald Trump has taken notice. In Monday's "The Apprentice" on NBC, the Tahoe took a starring role as aspiring Trump assistants were challenged to create a training event for Chevrolet dealers and marketing executives.

GM has moved ahead production of its large SUVs twice before. But because of the Tahoe's success, GM is asking its automotive suppliers to ship parts ahead of schedule, so it can begin building new versions of SUVs like the Chevrolet Suburban and GMC Yukon XL faster, Sipes said.

GM begins production next week of the new Chevrolet Suburban at a plant in Silao, Mexico, and is hoping to move up production of more large SUVs at plants in Janesville, Wis., and Arlington, Texas.

GM builds the Tahoe, GMC Yukon and GMC Yukon XL in Arlington and the Tahoe and the Yukon in Janesville. Both plants are capable of building the Suburban, Cadillac Escalade and Escalade ESV if demand grows.

All the models in the sprawling family offer both better fuel economy and more powerful engines. New features include power tailgates, power flip-and-fold middle-row seats, power retractable running boards and a more powerful version of GM's famous small-block V8 engine.

The new SUVs are crucial to GM's attempts to rebound from last year's $8.6 billion in losses. GM has nearly bet the company on the success or failure of the new large SUVs, and they could add billions of dollars in profits if they do well this year, said David Healy, an automotive analyst with Burnham Securities.

"I do think that GM's results are going to get a hell of a lot better as the new SUVs sell better, with better pricing, and a lot of their cost cuts coming in," said Healy, who estimated GM earns $10,000 or more in profit on every full-size SUV sold.

Also boding well: Consumers paid nearly $7,000 more for the new 2007 model year Tahoe in February than for the 2006 model, said Tom Libby, senior director of industry analysis at J.D. Power's Power Information Network.

Buyers of the new model paid an average of $41,233 for the new Tahoe in February versus $34,546 for the 2006 Tahoe, Libby said. "That's impressive," Libby said. "They need more of this."

SUV sales plunged late last summer when hurricanes drove gas prices above $3 a gallon briefly.

With gas prices now hovering between $2.30 and $2.50 a gallon, news reports of SUV rollovers in crashes and roomy crossover vehicles coming to market, GM admits that the U.S. market for large SUVs won't hit 1 million vehicles this year like it did a few years ago.

Sales most likely will ease to about 750,000 annually, but GM intends to hold its dominant market share at around 62%, Sipes said.

Other automakers are bringing out new SUVs. Ford will bring out the new models of the Expedition and Lincoln Navigator this fall. The Chrysler Aspen, a version of Chrysler's Dodge Durango, also comes out this year.

For consumers worried about high gas prices, GM is quick to point out that its new SUVs have better fuel economy than any competitors' models.

The new two-wheel-drive Tahoe gets 22 miles...

Continued:http://www.freep.com/apps/pbcs.dll/a.../1014/BUSINESS

[alerogl2]

The main reason SUV sales were down last year was not due to oil, it was due to the fact that GM the market leader had a stale lineup of product, as did Ford.

When your product is stale of course it will decrease. Oil I am sure has had some minor affect on the sales and the market may never reach its peak but it will maintain its size.

[nsap]

Originally Posted by alerogl2

The main reason SUV sales were down last year was not due to oil, it was due to the fact that GM the market leader had a stale lineup of product, as did Ford.

When your product is stale of course it will decrease. Oil I am sure has had some minor affect on the sales and the market may never reach its peak but it will maintain its size.

Overall I think you're correct. People were getting tired of buying virtually the same SUV everytime they trade their old one in (which was happening to Tahoe, Suburban, Yukon drivers).

However I do think oil prices effected sales slightly.

[joey]

Slightly? Just wait this spring and summer when gas hits $3/gal again. New Tahoe or not, the big boats will sit on the dealer lots.

Everyone forgets that the first 6-9 months of a new model, sales are always good. Equinoxes were hot last year but you got 50K of them sitting in inventory. People wise up to the quality issues and poor performance and lousy gas mileage.

[nsap]

Originally Posted by joey

Slightly? Just wait this spring and summer when gas hits $3/gal again. New Tahoe or not, the big boats will sit on the dealer lots.

I'll have to believe it when I see it. You'd be surprised how many SUV owners couldn't care less what kind of gas mileage they get. Obviously, since they own the gas guzzlers to begin with.

[K-1]

Originally Posted by joey

Slightly? Just wait this spring and summer when gas hits $3/gal again. New Tahoe or not, the big boats will sit on the dealer lots.

Everyone forgets that the first 6-9 months of a new model, sales are always good. Equinoxes were hot last year but you got 50K of them sitting in inventory. People wise up to the quality issues and poor performance and lousy gas mileage.

And what else can you predict with your crystal ball? Will Duke win the NCAA tourney this year? Will Bush finally find those WMDs he's been looking for?

[camaro_freak]

lack of fresh product ... nah that didn't have anything to do with it

seems a bit confusing to me how avehicle could be a year old by the time the calendar says thatnew model should have come out (if '07 Tahoes were available in Jan '06 )

What happened to all the '06 Tahoes?

[ponchoman49]

It's nice to finally hear something other than doom and gloom news or how Toyota is going to be number one which is also doom and gloom news to me. These new Tahoes are nice indeed. We have lots of them available in all the Chevy dealers in Upstate, NY. In fact my local Chevy dealer has about 10 of various colors available so I was fortunate enough to sit in several examples. This very same dealer also has a yard full of SUV and full sized truck trade ins in his used lot, and very few used cars, as do many other local places so the gas mileage issue has very obviously affected people in this area some.

[fred96ws6]

Maybe they should try using the correct pic for the 07's

[rsbaker]

whether Gas is at $2.30/gal or at $3.00 /gal as long as that price is stable I think people who buy large SUVs Will continue to buy. It is when the price of gas seems to be rising out of control with no end in sight that people get spooked about large vehicles. Stability is the key so people can budget for the Gas they use. of course lower is always better when it comes to gas prices.

[Rtay2000]

I agree that is has nothing to do with Gas. If you can afford that new vehicle you can pay for the gas. A lot of people that buy these own boats. Have you ever got gas in a boat yard before, pfft, it's high.
There was a drop in sales I think because like stated before no one wants to by a new SUV that looks the same as it did 7 years ago.

[tgagneguam]

Originally Posted by joey

...Everyone forgets that the first 6-9 months of a new model, sales are always good. Equinoxes were hot last year but you got 50K of them sitting in inventory. People wise up to the quality issues and poor performance and lousy gas mileage.

This may hold true for the Tahoe, but I don't think you're accurate in saying that for the first 6-9 months of a new model, sales are always good. There are plenty examples of that not being true (particularly within GM, actually). Things definitely could have been worse for these vehicles.

The part that I find amazing-and refreshing-to this story is the following:

And the surprising surge comes without a cent of incentives on the new model, which is selling for more than the vehicle it replaced.

The GMT-900's are charged with returning GM to profitability, and the above, combined with their 62% presumed market penetration and $10,000 per-vehicle profit means over $4.5 billion toward that end this year.

I was a definite skeptic of moving these vehicles' intro's ahead (and the subsequent drain on engineering resources for other programs), but at least early signs are strong, negative journalistic and fuel environments notwithstanding.

I hope GM learns its lesson that heavily investing resources into redesigns results in strong, unincentivized sales. It really seems that simple.

[plane]

Originally Posted by tgagneguam

I hope GM learns its lesson that heavily investing resources into redesigns results in strong, unincentivized sales. It really seems that simple.

What a great post.
GM, now it's time to take back the mid-size sedan market.

[sigma]

As long as prices don't spike from say 2.30 to 3.00 (or something close to that extreme) I don't think SUV sales will really be as badly hurt this year, as they were last year. Gas prices are already rather high, and those who won't consider SUV's because of their fuel economy have already made their decision not to consider them.

[Ultra Magnus]

Im waiting for the ESV, before I really start looking. I like the Tahoe but after sittin in the Escalade over the weekend, that is by far my favorite. So why go halfway when you can get the same mileage in a bigger truck? Let me know when the big ones arive.