Joined
·
7,885 Posts
http://online.wsj.com/article/SB122091667346012411.html?mod=yahoo_hs&ru=yahoo
A few months ago, General Motors Corp. flooded the prime-time airwaves with commercials introducing the G8, a big, powerful sedan that is supposed to re-energize GM's Pontiac brand.
But the ad blitz hasn't had much impact. In August, GM's 2,712 U.S. Pontiac dealers sold only 1,915 G8s -- not even one per dealer.
GM has problems on many fronts, including high gasoline prices, falling truck sales and billions in losses. The G8 illustrates one problem that's often overlooked: The auto maker's lineup contains many vehicles that deliver barely any bang for the buck.
Consider the Saab 9-5 sedan. GM promotes its Swedish brand's smaller 9-3 sedan, but the midsize 9-5 gets little exposure and as a result draws little interest from shoppers -- or even dealers. At Saab of Troy, in suburban Detroit, a few 9-5s are in stock but none are in the showroom, where customers typically spend their time browsing. In August, GM sold just 198 9-5s nationwide.
Mark LaNeve, GM's top marketing executive in North America, said the additional costs of offering slower-selling models are "really very incremental" because most share parts with higher-volume models. The G8, for instance, is a version of a car that has been a strong seller for GM's arm in Australia. Yet auto analysts say slow sellers are a bigger drag on profit that GM acknowledges.
Ron Harbour, a partner at the automotive consulting firm Oliver Wyman, said each model, even if only a variation of another vehicle, requires some engineering effort. Producing models in small numbers lowers manufacturing efficiency. Every vehicle needs its own documentation, manuals and brochures. Dealers have to be trained to service each model and have to spend money to keep them in stock. And each vehicle needs a certain amount of advertising and promotion. "For every model, you've got some investment costs, and if you don't sell enough of them, you might not be able to cover the capital costs," Mr. Harbour said.
GM recently said it hopes to cut $10 billion in costs over the next 18 months. Frederick "Fritz" Henderson, GM's president and chief operating officer, has ruled out closing or selling any of GM's eight brands besides Hummer, which GM has put up for sale. But he hasn't ruled out getting rid of some of its slow-selling models.
Ford Motor Co. and Chrysler LLC have made simplifying their model lineups a central part of their turnaround plans. Ford has sold its Jaguar, Land Rover and Aston Martin lines. People familiar with the matter have said Ford also intends to sell its Volvo division, although the company denies Volvo is for sale. Volvo offers eight models, all slow sellers. Chrysler dropped four slow sellers last year and has said it plans to eliminate a third or more of its remaining models. Mr. Harbour noted that foreign auto makers also have a few low-volume models. In August, Honda Motor Co. sold just 2,606 Element cross-overs in the U.S., and Nissan Motor Co. sold only 2,178 Armada sport-utility vehicles.
GM has trimmed some models, too. It folded its entire Oldsmobile division several years ago. And in the last few years, it has reduced the number of nameplates offered by its Buick, Pontiac and GMC brands, which are usually housed together at dealers, to 16 from 30. Nevertheless, 20 or more of the 60 models GM offers in the U.S. often generate sales of less than 2,000 vehicles a month. Another half dozen or so fail to break the 3,000-vehicle mark in some months. Some are luxury cars, like the Cadillac STS full-size sedan, or specialty models like full-size vans, which generate profit even at low volumes. But many are mainstream cars such as the Saturn Astra hatchback and Pontiac Solstice roadster that don't command premium pricing.
GM's trouble with slow-selling models is closely related to another problem: weak brands. Pontiac, Buick, Saturn and Saab are such small players in the U.S. market that whole swaths of car shoppers don't even consider them. Each of those four brands was outsold in the U.S. market in August by Kia Motors Corp., the Korean maker that specializes in low-priced cars.
John Casesa, a veteran auto consultant and partner at Casesa Shapiro Group in New York, said GM may have trouble eliminating some of its low-volume models because some dealers carrying Saabs and Pontiacs need every model to stay in business. "Even if you have a model that's not making money [for GM], it might live on to allow showrooms to stay open," he said.
A few months ago, General Motors Corp. flooded the prime-time airwaves with commercials introducing the G8, a big, powerful sedan that is supposed to re-energize GM's Pontiac brand.
But the ad blitz hasn't had much impact. In August, GM's 2,712 U.S. Pontiac dealers sold only 1,915 G8s -- not even one per dealer.
GM has problems on many fronts, including high gasoline prices, falling truck sales and billions in losses. The G8 illustrates one problem that's often overlooked: The auto maker's lineup contains many vehicles that deliver barely any bang for the buck.
Consider the Saab 9-5 sedan. GM promotes its Swedish brand's smaller 9-3 sedan, but the midsize 9-5 gets little exposure and as a result draws little interest from shoppers -- or even dealers. At Saab of Troy, in suburban Detroit, a few 9-5s are in stock but none are in the showroom, where customers typically spend their time browsing. In August, GM sold just 198 9-5s nationwide.
Mark LaNeve, GM's top marketing executive in North America, said the additional costs of offering slower-selling models are "really very incremental" because most share parts with higher-volume models. The G8, for instance, is a version of a car that has been a strong seller for GM's arm in Australia. Yet auto analysts say slow sellers are a bigger drag on profit that GM acknowledges.
Ron Harbour, a partner at the automotive consulting firm Oliver Wyman, said each model, even if only a variation of another vehicle, requires some engineering effort. Producing models in small numbers lowers manufacturing efficiency. Every vehicle needs its own documentation, manuals and brochures. Dealers have to be trained to service each model and have to spend money to keep them in stock. And each vehicle needs a certain amount of advertising and promotion. "For every model, you've got some investment costs, and if you don't sell enough of them, you might not be able to cover the capital costs," Mr. Harbour said.
GM recently said it hopes to cut $10 billion in costs over the next 18 months. Frederick "Fritz" Henderson, GM's president and chief operating officer, has ruled out closing or selling any of GM's eight brands besides Hummer, which GM has put up for sale. But he hasn't ruled out getting rid of some of its slow-selling models.
Ford Motor Co. and Chrysler LLC have made simplifying their model lineups a central part of their turnaround plans. Ford has sold its Jaguar, Land Rover and Aston Martin lines. People familiar with the matter have said Ford also intends to sell its Volvo division, although the company denies Volvo is for sale. Volvo offers eight models, all slow sellers. Chrysler dropped four slow sellers last year and has said it plans to eliminate a third or more of its remaining models. Mr. Harbour noted that foreign auto makers also have a few low-volume models. In August, Honda Motor Co. sold just 2,606 Element cross-overs in the U.S., and Nissan Motor Co. sold only 2,178 Armada sport-utility vehicles.
GM has trimmed some models, too. It folded its entire Oldsmobile division several years ago. And in the last few years, it has reduced the number of nameplates offered by its Buick, Pontiac and GMC brands, which are usually housed together at dealers, to 16 from 30. Nevertheless, 20 or more of the 60 models GM offers in the U.S. often generate sales of less than 2,000 vehicles a month. Another half dozen or so fail to break the 3,000-vehicle mark in some months. Some are luxury cars, like the Cadillac STS full-size sedan, or specialty models like full-size vans, which generate profit even at low volumes. But many are mainstream cars such as the Saturn Astra hatchback and Pontiac Solstice roadster that don't command premium pricing.
GM's trouble with slow-selling models is closely related to another problem: weak brands. Pontiac, Buick, Saturn and Saab are such small players in the U.S. market that whole swaths of car shoppers don't even consider them. Each of those four brands was outsold in the U.S. market in August by Kia Motors Corp., the Korean maker that specializes in low-priced cars.
John Casesa, a veteran auto consultant and partner at Casesa Shapiro Group in New York, said GM may have trouble eliminating some of its low-volume models because some dealers carrying Saabs and Pontiacs need every model to stay in business. "Even if you have a model that's not making money [for GM], it might live on to allow showrooms to stay open," he said.
