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Buick may owe its survival to China

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Buick may owe its survival to China

‘We’ve been given a second chance,’ says a Buick engineer

By Paul A. Eisenstein

msnbc.com contributor

updated 6:38 a.m. CT, Thurs., May 27, 2010

Jim Federico surveys a row of 2011 Buick Regals parked along the beachfront of a San Diego neighborhood. Less than a year ago it seemed highly unlikely the sedans would make it to market. Parent company General Motors had plunged into bankruptcy and promised to eliminate half of its North American brands in return for the federal bailout it needed to survive.

Many thought Buick was an obvious choice for GM to abandon. Its sales had plunged more than 80 percent over the last quarter century to barely 100,000 a year.

But when GM emerged from Chapter 11 last July, Buick was among the four marques the automaker chose to hang onto. And in a twist not often seen these days as U.S. manufacturing moves overseas, the brand that began America’s largest auto manufacturer may owe its survival to China.

“We’ve been given a second chance,” says Federico, the chief engineer on the new Regal, which rolls into showrooms over the coming summer. The success, or failure, of the new sedan will likely prove whether GM officials, working with the White House auto task force, made the right decision.

Founded by automotive pioneer David Dunbar Buick, the brand was the first acquired by former buggy maker Billy Durant as he transformed a collection of car companies and auto suppliers into the global powerhouse that became GM.

In its early years, Buick was often perceived as a “doctor’s car,” not quite as upscale as Cadillac, but still a brand that showed your success. It also was popular abroad; one of its fans included Henry P'u Yi, the last emperor of China.

But Buick’s reputation for great design, solid technology and breakthrough products like the original Riviera — the first competitive front-drive model from a major American automaker — began to slip after the two oil crises of the 1970s. After peaking at 940,000 units in 1984, Buick began what seemed, at first, just a modest decline. By the mid-1990s it turned into a full-fledged flame-out.

Sales tumbled

Sales volume tumbled to 581,600 in 1998. By 2009, it hit 102,300, a number last seen in Durant’s days. Industry analysts and investors routinely called for GM to abandon the brand rather than sink increasingly precious resources into products U.S. customers seemingly didn’t want to buy.

It was a very different story on the other side of the globe.

In the mid-1990s, when former chairman Jack Smith began pushing to set up the maker’s first joint venture in China, GM wanted to introduce one of the company’s major brands, like Chevrolet. Chinese bureaucrats had something else in mind.

After the Communist revolution, the former emperor’s old Buick landed in the garage of Mao Zedong’s second-in-command, Zhou Enlai, for whom it became his prized possession. The GM venture, officials demanded, would build Buicks.

It was an unlikely but fortuitous choice. Last year, the brand was among the biggest in the booming Chinese market, accounting for sales of more than 447,000, or more than four times Buick’s volume in the U.S.

That fact wasn’t lost on the White House when it began to negotiate a bailout with GM last year, said John Schwegman, who became vice president and head of Buick marketing this past March. It also helped, he said, that GM had a portfolio of new products it wanted to bring to market under the Buick badge that the maker was convinced could turn things around.

Enclave crossover

Buick had already scored a modest success with the Enclave crossover. And even before the new LaCrosse sedan hit market, the full-size model was winning raves. With the blessing of the auto task force, GM kept Buick on life support as it emerged from bankruptcy on July 10th.

The bet is showing signs of paying off. Since its launch, the LaCrosse has been exceeding even Buick’s optimistic expectations; sales for the year more than tripled compared to the last-generation sedan. Preliminary numbers suggest U.S. sales will reached 5,500 for May, another record, and would have topped 6,000 if dealer inventory hadn’t been depleted, according to Schwegman.

The Regal is intended to build on that momentum. The midsize sedan is a product of the radically revised development system put in place by GM’s vice chairman and “car czar” Bob Lutz, who retired early this month. It was developed to be a “world car,” sold in Europe as the Opel Insignia and in China as a Buick. In the U.S., however, it was originally intended to replace the Saturn Aura. But it became a Buick when GM decided to save the brand and kill off Saturn.

Regal is only the beginning of a wave of new products intended to resuscitate the Buick brand. A smaller sedan and a compact crossover are now under development, and “I think there’s an opportunity for a halo car,” suggested Schwegman. No decision has been made, but the GM executive hints that several possible products could fill that bill: a high-performance model, something with extremely edgy styling or a convertible.

Rolling out new product is critical not only to help change Buick’s image but to position it to compete in more of the market. Currently, its offerings target segments accounting for roughly 14 percent of total U.S. sales. By mid-decade, says Schwegman, that will be closer to 50 percent.

For his part, Buick General Manager Brian Sweeney believes that with Regal and the other new offerings, the brand will “double our sales in the next few years.”

Right niche

One challenge is finding the right niche to position Buick. GM clearly doesn’t want a second luxury brand, so the marque is being slotted in below Cadillac. And where Caddy is targeting European makers, such as Mercedes-Benz and BMW, Buick is going after Asian brands, such as Lexus.

Buick has been given an unexpected opportunity, notes analyst Stephanie Brinley, of AutoPacific, Inc., what with the embarrassing safety problems plaguing Lexus and its parent, Toyota.

She’s also upbeat about Buick’s latest products, which she says are “no longer floating yachts. They’ve recognized people want more involvement with their vehicles.”

AutoPacific data supports GM’s optimistic sales targets, forecasting sales of 201,400 by 2013. But because the overall U.S. market will continue recovering, Buick’s market share would only rise from last year’s 1.0 percent to 1.4 percent, a far cry from the brand’s peak.

Nonetheless, it would suggest there was reason to give Buick that second chance, especially when one adds in the division’s strong numbers from China. And at a time when a struggling General Motors needs all the help it can get, Buick may once again prove to be a foundation for the company.

link:

http://www.msnbc.msn.com/id/37361381/ns/business-autos//

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Two things:

1) Too bad the emperor didn't have a Pontiac.

2) They are so far off on the Riviera/FWD comment as to be laughable. (Check your research, kids).

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Shame it wasn't a Pontiac. Then Mao could've gotten a super price on an entire fleet for his population! The People's Fleet!

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Shame it wasn't a Pontiac. Then Mao could've gotten a super price on an entire fleet for his population! The People's Fleet!

Since when would Buick have limited his options on that front?

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US Buicks could be the marginal units that are sold at a small but interesting profit, since Chevy absorbs the largest portion of fixed costs. And if one reallocates costs per brand, perhaps Buick China absorbs close to all of the brand-specific fixed costs leaving the US Buicks again as the marginal but profitable at an interesting level units.

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