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Big Three automakers look offshore for profitable entry-level models
940news.com
17:49 on March 28, 2004, EST.
STEVE MERTL

VANCOUVER (CP) - Automakers have always found it hard to squeeze profits out of the entry-level car market but they're looking for new ways to do it as rising fuel and insurance costs erode the public's love of more lucrative sport-utility vehicles.
The challenge is especially important in Canada, where compact and subcompact models are closing in on 40 per cent of the market after sagging through the 1990s. For the Big Three domestic automakers, part of the solution lies with sourcing lower-priced models offshore from Europe, Asia and even South America.
General Motors has plunged in the deepest, looking for help from what have been dubbed the "Chevywoos," three models made by GM's joint-venture with South Korea's Daewoo and badged as Chevrolets.

But Ford and DaimlerChrysler are also looking abroad to low-cost sources for salvation and closely watching how well GM's strategy succeeds.

"General Motors is holding market share; Ford and Chrysler are losing market share," says auto industry analyst Dennis DesRosiers of Richmond Hill, Ont.

"Much of it comes down to entry-level products. Chrysler doesn't have a car strategy at all in this country to speak of."
SUVs and minivans dominated through the 1980s and 1990s but rising operating costs - fuel, insurance, repairs - have turned buyers back to sedans, redesigned station wagons and so-called cross-over sport-utes.

"Those customers would traditionally migrate to a sport utility - but they don't want to spend the fuel or the cost that a sport utility requires," says John Healey, GM Canada's director of engineering.

The entry-level segment - a basket of types that includes smaller SUVs and pickup trucks - actually peaked in 1991 with 46 per cent of the Canadian market. It declined to about 30 per cent in 1996 before beginning to recover, according to DesRosiers's figures.
But by last year, it was up to 38.3 per cent, about as big as the mid-size segment. DesRosiers believes entry level will soon climb back to the mid-40 per cent range in three to five years.
Profits are thin at almost every level except luxury vehicles, he says, so a company without a strategy in entry level is courting trouble.

Last year, GM began importing the Chevywoos: the subcompact Aveo, the Optra and the larger Epica.
This year, GM is retiring the 25-year-old Chevy Cavalier, its best-selling, loss-leader compact model, and replacing it with the upmarket Cobalt.
The Cobalt and its Pontiac sibling the Pursuit will be offered near the top of that range, splitting Cavalier's old market.
"The strategy of having the Korean stuff to come in to get under this (the Cobalt) gave us the flexibility to have a profitable small car," says Healey.
Aveo and Optra will go up against its Korean brethren from Hyundai and Kia, as well as Toyota's Japanese-sourced Echo.

"So our strategy is at the bottom end to bring in import vehicles where North American costs make those kinds of vehicles unprofitable," says Healey. "And we take over where North America shines at the upper level of small car and on up."

The Canadian market is closer in some ways to Europe and Asia than it is to the United States, where small cars play a negligible role. Healey points out GM's U.S. parent doesn't even offer the Optra or the Pontiac Pursuit.

"They abandoned that end of the market and I think they'll be sorry for it," he says, referring to rising fuel prices south of the border.

The dichotomy between the Canadian and U.S. markets makes planning challenging, concedes Alain Batty, Ford of Canada's president.

"The small-car segment in Canada is large but not large enough to support the development of a small vehicle," he says. "And the U.S. market does not really require these small vehicles."

DesRosiers says GM's strategy could work if the upmarket Cobalt and Pursuit are priced correctly and customers accept GM's claims of improved quality.


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Quick Question, how much of a hassle is it to import a car from Canada to the united states?? Because I think alot of people in america would like the pursuit more than the cobalt. Maybe gm realizes this, and thats why they decided to bring the cobalt to the us instead of the pursuit, to preserve chevys market share.
 

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There is so much that GM and its affiliates do right with their cars and trucks; it's great that they are [finally] leveraging their global resources. It will undoubtedly translate into stronger sales and higher profits.
 

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Aveo, Optra and Epica sales seem to be going well so far and Hyundia sales have been falling up here as of late. These Chevywoos combined with GM's marketing might may spell disaster for some Korean makers and the U.S. mite see the Optra and Epica show up at Chevy dealers sooner rather than later.

I wouldn't personally buy any of these cars but there is a segment of the population that is looking for the cheapest thing they can get.
 

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That group of people / segment of the population have been buying the 2 decade + old Cavalier for so long, they'd be happy with the modern interior and exterior designs of the Optra and Epica, I'd think. Those that bought Cavaliers as "tuners" will have the Cobalt as a canvas. The Epica and Optra are a little underpowered for tunerdom (which will keep insurance costs low!).
 

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Originally posted by Maetrix66@Mar 29 2004, 03:44 PM
Quick Question, how much of a hassle is it to import a car from Canada to the united states?? Because I think alot of people in america would like the pursuit more than the cobalt. Maybe gm realizes this, and thats why they decided to bring the cobalt to the us instead of the pursuit, to preserve chevys market share.
I know there are companies out there that import Canadian models to the U.S. because of cost advantages in Canada. We have one right in town, but as I understand it, manufacturers are against this sort of thing and won't honor warranties.

In this case of importing a model that's not even sold, I'm betting it gets even riskier.
 
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