Filed under: Economy, GM, Earnings/Financials
GM's Plan: Small cars making a big profit
GM currently owns about 13% of the small car market. With demand for small vehicles increasing with the price of black gold, GM is out to increase that market share. Nevertheless, even if it doesn't increase its share, it plans to make more money off of each small car sold. How? By raising the price, naturally.
The plan is simple: make better small cars, charge more for them. The upcoming Cruze could run you a few thousand more than the outgoing Cobalt, for instance. The test is to see whether cars like the Cruze will be worth the premium. GM Global Design Chief Ed Welburn said, "In North America, we never did a good small car." The General plans to bury that piece of its history... but it's going to charge you, the consumer, for the funeral.
The idea that GM can lasso the small car market while charging a premium, at the same time as slashes its marketing budget by $1.5 billion, takes some effort to swallow. One analyst said that demand for small cars will outstrip supply, so GM could get away with it. However, until we see proof of small GM cars that take bats to the established competition, we'll have to give this plan a "Hmmm."
[Source: Automotive News, subs. req'd]
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Reader Comments (Page 1 of 4)
Declan Moran 10:34AM (7/21/2008)
here we go, GM arriving late to the ball with a bottle of Jack in one fist
get ready for the night from hell
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Vintage 11:08AM (7/21/2008)
And they still aren't realizing one minor thing: GM vehicles have crap resale value, which means people like myself would completely avoid paying much for them.
why not the LS2LS7? 11:29AM (7/21/2008)
Vintage:
Actually, GM's strategy up until now has been that every vehicle they sell in the North American market must have a "value advantage", meaning that it must sell for slightly less than comparable cars in its segment.
This has meant that GM will almost always make the least polished car in a comparo and then hope to make up the difference by priace advantage.
Lutz has faught this, and it looks like he's winning, at least as a trial.
So you are saying they still don't realize people like you don't want to pay much for their cars, when in fact it's been one of their tenets up until now.
I would suggest that as a person who espouses the virtue of used cars so strongly, a range of cars with low resale value would interest you, as it means by the time you go to buy it, it's already on the cheap. No?
Kingus 11:45AM (7/21/2008)
Vintage:
They can't really do anything about that in the short term though. It's an image problem that will take decades to correct.
Holden Miecranc 11:53AM (7/21/2008)
Actually, Vintage, re-sale or residual value based on MSRP is poor judge of a vehicles value after X number of years. That's been a great marketing ploy for Toyota, for example, but the reality is that the most important dollar amount is a consumers' actual out of pocket cost for a vehicle.
When one compares the actual cost to own a vehicle, GM vehicles don't fare anywhere near as poorly as uninformed people perceive them. For example, an Impala costs less to own for five years than does a Camry, as shown on Edmund's "True Cost To Own". (A Hyundai Azera also has a lower "True Cost To Own" than does an Avalon.)
If you read posts from people who only look at what a car sells for five years after purchase, they are only half informed. Seeing as GM products have a lower initial purchase price (courtesy of rebates, etc), it is ensured that the vehicle is going to be worth less later. If you spend $3,000 less for an Impala than you would for a Camry, it better be worth $3,000 less after the purchase.
Unfortuantely, too many people posting here have an understanding of basic finance that is as limited as their knowledge of the automobile industry.
hydrogenvodka 12:22AM (7/22/2008)
ACtually, Vintage, everybody apparently thinks you are 5 years old. They're all right.
henrykrinkle 10:35AM (7/21/2008)
To all those who keep defending the Cobalt, here it is straight from the horse's mouth:
"GM Global Design Chief Ed Welburn said, 'In North America, we never did a good small car.'"
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Gstill 10:54AM (7/21/2008)
That should have been the name of the article, because that was the biggest piece of the whole thing. A Corolla or Civic cost a few grand more than a Cobalt, and outsell GM anyways. Make a more desirable car and the sticker price isn't as important.
Atomicbri 10:51AM (7/21/2008)
LOL! Amen to that!
PJ 1:19PM (7/21/2008)
Okay, but at least grant me this: it was decent enough that Chevy should have kept the name and built on it.
Especially if they're trying to do an upscale compact. Intentional misspelling makes baby Webster cry.
"Chevy Cruze, now available at Honest Lutz's Kompact Kar Korral!"
Torrent 1:44PM (7/21/2008)
Cobalt is great, especially the SS, but it's with it's quality, it should be fighting with the Fit and Yaris. Even then, it would lose. If Chevy could make a great base model interior in the Malibu for 20K, they could surely do it with the Cobalt. Keep the price the same and people will come. Sure, you'll lose a couple thousand bucks per car, but it'll pay for itself once they're moving out faster than those people did in King Kong.
asifgrkhan 2:28PM (7/21/2008)
I don't know if any of you guys remember this but in 2005 when the Cobalt was being launched to replace the Cavalier, this was the exact same thing which was mentioned by GM.
I read a lot of news articles comparing how GM was putting money ($2000-$3000) on the hood of the Cavalier/Sunfire twins while the Japanese competition were not doing that (or at least to that extent). Now with the Cobalt, GM has a worthy competitor to actually demand MSRP.
Well we know how well that went.
P.V. 10:36AM (7/21/2008)
It's inevitable. Prices for these materials are going up anyway.
At least Ford won't have such a hard time selling its Euro cars here at a premium (as long as it isn't a HUGE premium).
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Declan Moran 10:37AM (7/21/2008)
I just want to add that GM has sold less than 10k small cars of any worth in this country so far (that little opel from europe)
So when they proclaim, (these truck builders, I mean) that they see huge profit in the future by selling small cars, well quite frankly, a huge part of me tastes bile...
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Dave 3:39PM (7/21/2008)
Americans seldom buy hatchbacks.
And the ones who do buy hatchbacks buy them because they make sense. (more space with no mpg penalty)
But sensible people notice that the Astra's 1.8 gets worse mpg than the Cobalt's 2.2.
And that makes the Astra a flop.
P.V. 10:38AM (7/21/2008)
It's inevitable. Prices for the materials are going up anyway.
At least Ford shouldn't have as much trouble selling its Euro cars at a premium (as long as it isn't a HUGE premium).
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P.V. 10:38AM (7/21/2008)
(stupid double post)
mark v 10:40AM (7/21/2008)
This is gonna cruze down the toilet like the rest of their cars.
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Disgruntled Goat 11:30AM (7/21/2008)
On the contrary, GM will soon discover that people are happy to pay an extra couple thousand for a quality small car. GM has just never given them the option before so they're a little hesitant. Once they get past this 'small=cheap' mindset they'll see that they can make quite a bit of profit by making good small cars.
ML 12:21PM (7/21/2008)
Wonderful(!). Best post on this subject yet(!!!).