Sign in to follow this  
Followers 0
Northstar

Fuel costs raise doubts for GM SUVs

6 posts in this topic

By Jason Stein
Automotive News / September 05, 2005

http://www.autonews.com/article.cms?articleId=54388

DETROIT -- Fill 'er up? Maybe not.

In some U.S. cities last week, regular unleaded gasoline was selling for $3.49 a gallon. That means filling a three-quarter-ton Chevrolet Suburban's 37.5-gallon tank cost a wallet-whopping $130.88, or $62 more than in January.

Hurricane Katrina's short-term impact on fuel prices highlighted a worst-case scenario for Detroit's automakers: As gasoline prices rise, the product mix could shift away from big SUVs - and profits could shift with it.

The timing is bad for General Motors, which is preparing to launch its next generation of full-sized SUVs next year. GM's pretax profit on its full-sized SUVs nearly equaled its overall net income in 2004, one Wall Street analyst says.

Even before Katrina pushed gasoline prices past $3, fuel costs were rising. And large SUV sales in the United States were taking a beating.

Through the first five months of the year - before employee pricing incentives cleared out 2005 inventories - GM's SUV sales were down 19.7 percent, compared with the same period a year earlier.

Changing mix

GM's large nonluxury SUV sales - the Chevrolet Suburban and Tahoe as well as GMC Yukon and Yukon XL - were off 27.2 percent.

Gasoline prices weren't the sole cause for the decrease. GM's full-sized SUVs are losing sales appeal in their last year before the arrival of restyled, re-engineered versions. And gasoline prices haven't hurt pickups. With the help of sizable incentives, sales of full-sized pickups built on the same architecture, GMT800, rose in the first five months of this year.

What segments benefited? Small cars and more fuel-efficient vehicles such as the Chevrolet Equinox sport wagon and Colorado pickup.

Even the Japanese automakers were not immune to the changes.

Through eight months this year, U.S. sales of the large Toyota Sequoia SUV were down 15.3 percent from the same period a year earlier. But sales of the Prius hybrid car rose a staggering 132.0 percent, from 31,406 units to 72,849 units.

Shane Sanders, Internet sales manager at Antwerpen Toyota in Clarksville, Md., says demand for the Prius and hybrid version of the Highlander mid-sized sport wagon started to rise the third week of July. Last week he sold five Highlander hybrids.

"It's absolutely hit the roof," Sanders says.

GM delayed some mid-sized car programs in order to speed the launch of its full-sized SUV and pickup programs, code-named GMT900.

When GM redesigned its GMT800 architecture six years ago, the automaker watched profits roll in as the U.S. full-sized truck segment mushroomed from 3 million to 3.5 million units annually.

Deutsche Bank analyst Rod Lache estimates GM earned at least $5 billion in pretax profit from its GMT800 architecture last year. That included $2 billion from large pickups and $3 billion from SUVs. Total corporate net income for 2004 was $3.69 billion.

Last summer, Paul Ballew, GM's executive director of global market and industry analysis, said that if gasoline prices topped $2.50 a gallon, it could affect the mix in the long run. He said GM's research showed that gasoline prices must rise to $2.50 to $3 a gallon for a sustained period to change vehicle-buying decisions.

A change in tone

As gasoline spiked above $3 a gallon last week across the country, Ballew said GM doesn't see sales of full-sized SUVs returning to "peak levels." But he's unconcerned about the launch of GM's SUVs next year. "We're not anticipating it will be at $3," he said. "But anytime we're in the $3 a gallon range, it gets our attention."

In a research note last week, Himanshu Patel, an auto analyst at JPMorgan Chase & Co. in New York, expects "roughly a 15 percent reduction" in volume levels on the GMT900. Last year GM sold roughly 1.52 million large pickups and SUVs.

GM is not alone. With a redesigned Explorer SUV coming this fall, Steve Lyons, Ford Motor Co. group vice president for North America marketing, sales and service, said gasoline prices are an immediate concern.

The solution? "We'll learn how to make more money on cars," Lyons said. "We have to."
0

Share this post


Link to post
Share on other sites
fortunatly some people still need to use trucks, and as long as GMT900s are the best on the market and will be the best in the future... GM will still be selling trucks, hopefully they can take some of Fords Truck market share, because that would be great to get more GM work trucks on the road...
0

Share this post


Link to post
Share on other sites

fortunatly some people still need to use trucks, and as long as GMT900s are the best on the market and will be the best in the future... GM will still be selling trucks, hopefully they can take some of Fords Truck market share, because that would be great to get more GM work trucks on the road...

[post="9608"]<{POST_SNAPBACK}>[/post]


People still need trucks to carry stuff, but they really do not need a large 6000 lb SUV to commute or go shopping. After spending $100 to fill the tank many people will think twice about purchasing one of these behemots. People lesasing these things really don't have that much extra cash, otherwise they would be purchasing

GM has to get its act toghether and get some good and interesting high mileage machines out soon, otherwise they will be in the scrap iron business.
0

Share this post


Link to post
Share on other sites
I agree that it will hurt the SUV's but truck sales should stay the same. Most of the poeple that buy trucks buy them because they use/need them. Most SUV buyers just want the lavishness and bling. I am in the market right now for a Avalanche, hoping I can pick a used one up cheap from people trying to dump them for Honda Civic's. But I'm buying one because I need to pull a 22' enclosed trailer with it. Otherwise I would be buying a car. I've always been more of a car guy.
0

Share this post


Link to post
Share on other sites
360 hp Diesel with 6-speed auto anyone? GM is not expecting fullsize truck sales to match previous levels, but with the best fuel-economy in the segment, and much improvement on the way with lighter aluminum engines, more 6-speed autos, DOD, VVT and eventually the two-mode hybrid they'll be in a good position.
0

Share this post


Link to post
Share on other sites
How many times does this have to be said... THE reason GM is fast-forwarding the launch of GMT900 is because of MARGIN problems, not demand. Demnad will probably NEVER fully recover to the inflated levels of the past decade for big BOF SUVs as the market was trending to crossovers LONG before fuel prices were of concern. GM knows demand will not be what it was for GMT800, their main concern is getting the MARGIN right or A.K.A. having a competitive line-up on the market that they're not having to incentivize $6,000 a pop to sell. When the prices recover, as hopefully GMT900 will allow since it will be more positioned to compete, GM will be fine. They might not be bringing in the killer $$$ of the 90's on trucks, but they also won't be bleeding red ink everywhere either. GMT900 is esentially a "break even or better" plan.
0

Share this post


Link to post
Share on other sites

Your content will need to be approved by a moderator

Guest
You are commenting as a guest. If you have an account, please sign in.
Reply to this topic...

×   You have pasted content with formatting.   Remove formatting

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

Sign in to follow this  
Followers 0