Has GM Finally
Hit the Brakes
On Sales Slide?
By NEAL E. BOUDETTE
July 18, 2006
DETROIT -- General Motors Corp. placed a huge bet earlier this year that it could stop the company's long U.S. sales and market share decline by fundamentally changing strategy, moving away from big discount deals and stressing what amounts to everyday low pricing.
Now, Mark LaNeve, GM's top North American sales and marketing executive, says the shift is paying off -- even though GM's sales for the first six months of the year are down 12% from last year's discount-driven levels.
Mr. LaNeve argues that although GM's sales are down comparing last year to this year, the worst may be behind the company. If one just looks at the numbers over the last nine months, he says, GM's eight brands have stabilized their share at roughly 24%.
"First you have to stabilize it. Then you can make it go in the right direction," Mr. LaNeve says. GM, he says, "is optimistic about our share prospects for the balance of the year and [about] continuing this trend of stability and modest growth compared to our trailing 12-month rate."
Some analysts aren't convinced that GM is making a comeback. Ron Tadross, an auto analyst at Bank of America in New York, says he "would be very cautious" about the chances of GM gaining market share in the next year or so. While GM has several new models coming this year, he says the pace of launches will taper off in 2007. "They are at the peak of their product cycle right now, and the number of new models after this is only going to go down," he says. "So there's reason for skepticism."
For Mr. LaNeve, and his boss, GM Chairman and Chief Executive Officer Rick Wagoner, a lot is riding on whether their optimism is borne out over the next few months. GM has tried and failed for two decades to stop the steady loss of U.S. market share to Asian and European rivals. When Mr. Wagoner took over as CEO in June 2000, GM's U.S. share was 28.9%. As of June 2006, it had fallen to 24.1%, according to Autodata Corp.
That failure is a key issue for shareholder Kirk Kerkorian and his senior adviser and GM board member Jerome York, who are pushing GM to join an alliance with Renault SA and Nissan Motor Co. Mr. York in a speech this year said GM needed to be "realistic about market share and revenue expectations, and gear the cost and expense structure accordingly." Mr. York urged GM to "cull out the product offerings," and questioned why GM supports eight brands in the U.S., suggesting that both Saab and Hummer should go so that GM could focus its model development and marketing money on a smaller number of high-volume vehicles.
Mr. Wagoner and Mr. LaNeve have defended the eight-brand strategy, and said GM's new pricing strategy, rolled out in January, would start to reverse the damage done to GM's brands by the waves of heavily touted discount plans since October 2001's "Keep America Rolling" 0% financing promotion.
GM's new pricing strategy in certain cases amounted to a price increase compared with the best deals last year. In the first five months of this year, GM vehicles have on average sold for $27,915, $1,360 more than a year ago, according to the Power Information Network. That is within a few hundred dollars of Toyota Motor Corp.'s average transaction price of $28,335, which is down $296 from the first five months of 2005. But Mr. LaNeve says the more stable pricing system has helped to raise resale values for GM models, which is a key factor for many consumers in deciding which car to buy. For example, GM passenger cars sold in the third quarter should be worth 43% of their sales price after three years, up from 34% three years ago, according to Automotive Lease Guide.
GM expects that a string of important new models coming in six to nine months will spur sales, Mr. LaNeve said. Among them: Starting late this year, GM will start rolling out three new eight-passenger "crossover" vehicles that will offer the room and seating capacity of large sport-utility vehicles but ride smoother and consume less gas. These vehicles will be aimed at one of the fastest-growing segments of the market. Sales of crossovers have accelerated, and sales of heavier, less fuel-efficient SUVs have declined, as gasoline prices have risen to around $3 a gallon. But Bank of America's Mr. Tadross says new vehicles won't guarantee share gains for GM. "Everyone's launching new products," he says.
GM's models, however, represent a combination few other manufacturers offer: They seat up to eight passengers but are supposed to get about 25 miles per gallon on the highway, thanks to their lighter, car-based underpinnings. If they take off, GM could have a shot at gaining market share since the company has only a marginal presence in this segment now.
The challenge for GM is that its new family-size crossovers will be going to three of its smallest brands: Saturn, GMC and Buick. Chevrolet, GM's most family-oriented brand, sells more than twice as many vehicles as those three combined. But it won't have its own family-size crossover for about three years. "Chevy is the powerhouse. It is GM's strongest brand," said Michael J. Jackson, CEO of AutoNation Inc., the largest chain of dealerships in the U.S. and a huge seller of GM vehicles. "Chevy should get first call on everything the company has."
Mr. LaNeve acknowledges "it's a good question" whether one of the new crossover vehicles should be a Chevrolet, but he says it makes sense to hold off on a Chevy version because GM's volume brand is already launching new Tahoe and Suburban sport-utility vehicles and Avalanche and Silverado pickup trucks this year.
GM executives say they are committed to Chevrolet, but need to shore up the other brands, too. That's one reason why one of GM's most eye-catching new vehicles, the Sky Roadster, is a Saturn. Chevrolet dealers argue the Sky, or the Saturn Aura, a new midsize sedan with a sleeker look than the competing Chevy Malibu, could sell better in their brand. "They have to feed all the puppies," laments Tommy Brasher, who owns Chevrolet and Buick dealerships in Weimar, Texas.
Mr. LaNeve says GM's eight-brand strategy positions the company to regain market share. Chevrolet is strong in the middle part of the U.S., but weak on the coasts. Saturn, he said, "is the exact inverse." Surveys also show Toyota and Honda customers are willing to consider Saturn, but won't think about driving a Chevy, he said. "Saturn is a great conquest brand for us," he said, using the industry term for taking customers away from rivals.
Hit the Brakes
On Sales Slide?
By NEAL E. BOUDETTE
July 18, 2006
DETROIT -- General Motors Corp. placed a huge bet earlier this year that it could stop the company's long U.S. sales and market share decline by fundamentally changing strategy, moving away from big discount deals and stressing what amounts to everyday low pricing.
Now, Mark LaNeve, GM's top North American sales and marketing executive, says the shift is paying off -- even though GM's sales for the first six months of the year are down 12% from last year's discount-driven levels.
Mr. LaNeve argues that although GM's sales are down comparing last year to this year, the worst may be behind the company. If one just looks at the numbers over the last nine months, he says, GM's eight brands have stabilized their share at roughly 24%.
"First you have to stabilize it. Then you can make it go in the right direction," Mr. LaNeve says. GM, he says, "is optimistic about our share prospects for the balance of the year and [about] continuing this trend of stability and modest growth compared to our trailing 12-month rate."
Some analysts aren't convinced that GM is making a comeback. Ron Tadross, an auto analyst at Bank of America in New York, says he "would be very cautious" about the chances of GM gaining market share in the next year or so. While GM has several new models coming this year, he says the pace of launches will taper off in 2007. "They are at the peak of their product cycle right now, and the number of new models after this is only going to go down," he says. "So there's reason for skepticism."
For Mr. LaNeve, and his boss, GM Chairman and Chief Executive Officer Rick Wagoner, a lot is riding on whether their optimism is borne out over the next few months. GM has tried and failed for two decades to stop the steady loss of U.S. market share to Asian and European rivals. When Mr. Wagoner took over as CEO in June 2000, GM's U.S. share was 28.9%. As of June 2006, it had fallen to 24.1%, according to Autodata Corp.
That failure is a key issue for shareholder Kirk Kerkorian and his senior adviser and GM board member Jerome York, who are pushing GM to join an alliance with Renault SA and Nissan Motor Co. Mr. York in a speech this year said GM needed to be "realistic about market share and revenue expectations, and gear the cost and expense structure accordingly." Mr. York urged GM to "cull out the product offerings," and questioned why GM supports eight brands in the U.S., suggesting that both Saab and Hummer should go so that GM could focus its model development and marketing money on a smaller number of high-volume vehicles.
Mr. Wagoner and Mr. LaNeve have defended the eight-brand strategy, and said GM's new pricing strategy, rolled out in January, would start to reverse the damage done to GM's brands by the waves of heavily touted discount plans since October 2001's "Keep America Rolling" 0% financing promotion.
GM's new pricing strategy in certain cases amounted to a price increase compared with the best deals last year. In the first five months of this year, GM vehicles have on average sold for $27,915, $1,360 more than a year ago, according to the Power Information Network. That is within a few hundred dollars of Toyota Motor Corp.'s average transaction price of $28,335, which is down $296 from the first five months of 2005. But Mr. LaNeve says the more stable pricing system has helped to raise resale values for GM models, which is a key factor for many consumers in deciding which car to buy. For example, GM passenger cars sold in the third quarter should be worth 43% of their sales price after three years, up from 34% three years ago, according to Automotive Lease Guide.
GM expects that a string of important new models coming in six to nine months will spur sales, Mr. LaNeve said. Among them: Starting late this year, GM will start rolling out three new eight-passenger "crossover" vehicles that will offer the room and seating capacity of large sport-utility vehicles but ride smoother and consume less gas. These vehicles will be aimed at one of the fastest-growing segments of the market. Sales of crossovers have accelerated, and sales of heavier, less fuel-efficient SUVs have declined, as gasoline prices have risen to around $3 a gallon. But Bank of America's Mr. Tadross says new vehicles won't guarantee share gains for GM. "Everyone's launching new products," he says.
GM's models, however, represent a combination few other manufacturers offer: They seat up to eight passengers but are supposed to get about 25 miles per gallon on the highway, thanks to their lighter, car-based underpinnings. If they take off, GM could have a shot at gaining market share since the company has only a marginal presence in this segment now.
The challenge for GM is that its new family-size crossovers will be going to three of its smallest brands: Saturn, GMC and Buick. Chevrolet, GM's most family-oriented brand, sells more than twice as many vehicles as those three combined. But it won't have its own family-size crossover for about three years. "Chevy is the powerhouse. It is GM's strongest brand," said Michael J. Jackson, CEO of AutoNation Inc., the largest chain of dealerships in the U.S. and a huge seller of GM vehicles. "Chevy should get first call on everything the company has."
Mr. LaNeve acknowledges "it's a good question" whether one of the new crossover vehicles should be a Chevrolet, but he says it makes sense to hold off on a Chevy version because GM's volume brand is already launching new Tahoe and Suburban sport-utility vehicles and Avalanche and Silverado pickup trucks this year.
GM executives say they are committed to Chevrolet, but need to shore up the other brands, too. That's one reason why one of GM's most eye-catching new vehicles, the Sky Roadster, is a Saturn. Chevrolet dealers argue the Sky, or the Saturn Aura, a new midsize sedan with a sleeker look than the competing Chevy Malibu, could sell better in their brand. "They have to feed all the puppies," laments Tommy Brasher, who owns Chevrolet and Buick dealerships in Weimar, Texas.
Mr. LaNeve says GM's eight-brand strategy positions the company to regain market share. Chevrolet is strong in the middle part of the U.S., but weak on the coasts. Saturn, he said, "is the exact inverse." Surveys also show Toyota and Honda customers are willing to consider Saturn, but won't think about driving a Chevy, he said. "Saturn is a great conquest brand for us," he said, using the industry term for taking customers away from rivals.
No comments:
Post a Comment