Chevy's plan: More from less

[Northstar]

GM puts a lid on Impala output to boost pricing

Jamie LaReau | Automotive News / March 20

DETROIT -- How do you make more profit while selling fewer vehicles? By controlling inventory and squeezing more revenue out of each transaction.

General Motors is capping production of the Chevrolet Impala sedan at 250,000 units for sale in the United States and Canada this year, a knowledgeable source says. That means GM is sacrificing about 60,000 sales of its best-selling car. GM also will emphasize higher trim levels to increase transaction prices.

The automaker is trading unit volume for what it expects will be higher transaction prices, lower incentives and higher residual values. One key goal: Cut fleet sales of the Impala, which hit 50 percent of total Impala sales last year.

GM also will cut costs by cutting the third shift at the Oshawa, Ontario, plant where the Impala is assembled.

GM is adjusting production on other good sellers to manage inventory and extract more revenue out of each transaction. The source says GM will hold production of the Chevrolet HHR at 120,000 units rather than add capacity to build more of the popular sport wagon.

By contrast, GM is increasing production of higher-priced versions of the so-far-successful new Tahoe large SUV.

Sale prices rise

GM's is seeing higher transaction prices for the new Impala, which came out last fall, and the new Tahoe.

According to J.D. Power and Associates' Power Information Network, the 2006 Impala's average transaction price last month was $22,082, compared with the 2005 model's average transaction of $20,387 a year earlier. (See box.) The base Impala starts at $20,990, including shipping. The top Impala model starts at $26,990.

The 2007 Tahoe's average transaction price in February was $41,233, compared with the 2006 model's average transaction price last February of $34,546, according to the PIN data.

The 2007 Tahoe's average turn rate is 13 days, compared with 94 days for the 2006 model. The top-line model Tahoe has a sticker price at $38,990, including shipping.

U.S. Tahoe sales for the first two months of 2006 were 28,524, up 49.8 percent from the year-ago period, according to the Automotive News Data Center.

Chevrolet General Manager Ed Peper says demand is strong for the high-trim versions of the Tahoe, prompting GM to build more 3LT and LTZ models.

Chevrolet executives monitor dealers' orders daily and make production adjustments, Peper says. One surprise, he says, has been sales of the high-trim Impala SS models with V-8 engines, which the old model didn't have.

In 2004 GM built 296,594 Impala sedans, and last year built 258,524 as it phased out the old version and ramped up to build the new one. GM sold 311,135 Impalas in the United States and Canada in 2004, the last full year of production of the old model.

GM could easily sell 300,000 Impalas this year, the source estimates. But GM is set to cut a third shift sometime this year at the Oshawa plant. GM added the shift in June 2002.

GM would have to keep that shift if it were to build the maximum capacity, the source says.

Peper would not comment on the shift. But he says GM wants to limit fleet sales and increase retail sales to bolster residual values.

50% fleet

Last year, fleet sales were slightly more than 50 percent of Impala sales, says a source familiar with the data who asked to not be identified. Those data include 2005 and 2006 models. Fleet sales of a key competitor, the Toyota Camry, were less than 10 percent of overall 2005 sales, the source said.

According to figures from Automotive Lease Guide in Santa Barbara, Calif., the 36-month residual on the 2006 base Impala LS is 42 percent. That jumps to 44 percent on the LT model with the 3.8-liter V-6 and 45 percent on the high-trim SS model.

The 36-month residual on the base Camry is 49 percent, and it's 51 percent on the top-line Camry XLE V-6, according to Automotive Lease Guide.

At the end of last year, Chevrolet increased production of the HHR and will boost it again this year, Peper says. He declined to give a specific number. But a knowledgeable source says that after "several capacity adjustments," GM plans to build about 120,000 HHRs this model year.

"That's max without building additional capacity," the source adds.

Chevrolet launched the HHR last June and sold 41,011 of the sport wagons in 2005. During the first two months of this year Chevrolet sold 16,610, according to the Automotive News Data Center.

Managing Tahoe production is complicated by the fact that it is part of a group of full-sized SUVs coming out of the Janesville, Wis.; Arlington, Texas; and Silao, Mexico, assembly plants. That means that any changes to Tahoe production must take into account the coming launches of the Chevrolet Suburban SUV, due in late April, and the Avalanche pickup, due this summer.

Other full-sized SUVs built in those plants are the GMC Yukon and Yukon XL and the Cadillac Escalade, Escalade EXT and Escalade ESV.

In 2005, according to the Automotive News Data Center, GM built 495,201 trucks at all three plants combined, on two shifts.

http://autoweek.com/apps/pbcs.dll/article?...002/1041/WEBLOG

[FUTURE_OF_GM]

This could be good and bad....

The GOOD is obvious... Better resale, less fleet, better model mix, better profits.

The BAD: It's going to effect the numbers on share and sales, and the media WILL exploit that. It might knock the Impala out of the top ten sellers (Not sure) and it might limit exposure to the Impala (Less to rent--less exposure) Not a major point; I know.

If those are ALL fleet sales being cut, then the more the merrier.

I DO like what I'm hearing though... It looks like Chevrolet is really getting some strong momentum again (Despite what the media says) and so lives Chevrolet, so lives GM in a lot of ways. I also like how GM is so carefully micro managing the Impala and pitting it directly against the Camry. They need to CONTINUE aggressive marketing and initiatives to BETTER it position as a competitor, such as this. And then, when the new one debuts in a few years it'll be in an even better position to carry the torch. Impala must be KEY to GM's strategy and survival.

Oh, and PUSH those SS too... I'm sure not everyone wants a 300 or Charger.

[sciguy_0504]

Good, good, good.

[Chicagoland]

Less rentals, less of the "rental image". Even if the Impala was pushed, they'd have to dump into fleets to get some higher figures. Look how well that has worked in the past, not.

[VenSeattle]

Returning to profitability is far more important right now than market share. I think this is a good move. GM still keeps most of the volume while increasing profit, resale, and desirability.

[Matt276]

Give the Impala a better look, improved interior, 3.6L + 6-speed auto tranny, improved fuel economy and you would sell more than 250K a year. GM has to offer great products, not just good enough ones.

[Dsuupr]

This is a typical trend with GM. With new product there is always less fleet sold. As it ages they will increase fleet sales. Case in point is the newest Malibu.

I just wish they would rid themselves of fleet dependecy all together. That's the only way they are going to be able to help themselves in the long run.

I've said it before and I'll say it again. GM should have a division that just makes fleet vehicles. Taking the lead from products like the "Classic". They could easily make grill changes and other "cheap" changes and label them under a fleet brand line. This would keep the residuals of other GM products higher and help GM keep up the so needed plant capacity.

[Robert Hall]

This is a typical trend with GM.  With new product there is always less fleet sold.  As it ages they will increase fleet sales.  Case in point is the newest Malibu. 

I just wish they would rid themselves of fleet dependecy all together.  That's the only way they are going to be able to help themselves in the long run.

I've said it before and I'll say it again.  GM should have a division that just makes fleet vehicles.  Taking the lead from products like the "Classic".  They could easily make grill changes and other "cheap" changes and label them under a fleet brand line.  This would keep the residuals of other GM products higher and help GM keep up the so needed plant capacity.

It's kind of a catch-22, though... if they didn't have their regular models in fleets, then many potential buyers would never be exposed to them. For example, rentals from Avis is really the only driving exposure I've had with new GMs over the last decade...

[Enzora]

If those are ALL fleet sales being cut, then the more the merrier.

Or if, by producing more higher-trim models, GM could make the rental car companies buy those instead of base ones, it could help too. Give people a a better experience with the car than they would have gotten otherwise. I'm not sure if the rental companies would go for that sort of thing, but if so, it would certainly be worth looking into.

[ToniCipriani]

Actually, I've seen recently alot of rental companies buy loaded cars. I've yet seen a rental Lucerne without a full chrome grille.

[bobo]

It's the bottom of the line CX model Lucerne that has the full chrome grille. Upper models have it blacked out.

[Flybrian]

I've seen one Lucerne rental around here with a full chrome grille. Most have been V6 CXLs and a few V8s. The LaCrosses for rent are also quite generous, some with alloys and sunroofs. Ditto for G6s. The real duds are 4cyl Altimas, Mazda6s with wheel covers, and wheezy 300 bases.

[regfootball]

there's a hertz by my house. they always have camry's etc.

impala cutting fleet sales means malibu=fleet whore.

[Cadillacfan]

I would really rather have the Impala be the fleet whore over the 'bu.

It's so much nicer.

[Guest flowmotion]

It's kind of a catch-22, though...  if they didn't have their regular models in fleets, then many potential buyers would never be exposed to them.  For example, rentals from Avis is really the only driving exposure I've had with new GMs over the last decade...

<{POST_SNAPBACK}>

You say that like it's a good thing. They would probably have better luck if people were exposed tho their product with a salesman riding shotgun.

[AAS]

You say that like it's a good thing. They would probably have better luck if people were exposed tho their product with a salesman riding shotgun.

hehe... sorry to all the salespeople (Newbiewar comes to mind), but I'de rather not have a salesperson riding shotgun, EVER!

[turbo200]

Good move. GM reads C&G, clearly. All those discussions of transaction price and fleet sales. GM's response gives excuse to complement positive overall sales trends. I like the tenacity of thier report.

[Robert Hall]

You say that like it's a good thing. They would probably have better luck if people were exposed tho their product with a salesman riding shotgun.

Nah, driving a rental for a few days is a much better way to get familiar with a car than driving for a few minutes with a sales person...

Edited March 25, 2006 by moltar

[ShadowDog]

More from less? To stretch more from their interior plastics, it will be even thinner now?

I joke! I joke! C'mon, don't take me so seriously.

I see the light at the end of the tunnel, and it ain't heaven, so worry not. This is a nice step toward building a solid foundation for future success.

[andy82471]

Returning to profitability is far more important right now than market share. I think this is a good move. GM still keeps most of the volume while increasing profit, resale, and desirability.

I guess that means GM has conceded that Toyota will surpass them in terms of global sales. But you are right in the sense that a profitable GM at No.2 spot is far more desirable than a money losing GM at No.1.